Potential for Green Banks & National Climate Change Funds ...

Potential for Green Banks amp National Climate Change Funds in Africa

Scoping Report

Study conducted by the Coalition for Green Capital

Contents

Abbreviations ii

1 Executive Summary 1

2 Project Overview and Introduction 10Project Goals 11

Project Context 11

Project Partners amp Acknowledgements 12

Project Methodology amp Approach 13

3 Project Countries 16

4 Introduction to the Green BankCatalytic Green Finance Facility Model 18

5 Introduction to National Climate Change Funds 26

6 Profiles of Green BankNCCF Potential in Six Selected Project Countries 29Zambia 30

Ghana 48

Benin 66

Tunisia 84

Uganda 102

Mozambique 117

7 Overview of Process to Design Form Capitalize and Launch Green Banks Alongside National Climate Change Funds 138

8 Conclusions and Recommendations 146

Stakeholder Interview List 149

AFRICAN DEVELOPMENT BANK GROUP | ii

Abbreviations

(Country-specific abbreviations are noted directly in the text)

$ ndash US Dollars

AFB ndash Agence Franccedilaise de Deacuteveloppement

AFDB ndash African Development Bank

BCEAO ndash Central Bank of West African States

BGFA ndash Beyond the Greid Fund Africa

CFF ndash Climate Finance Facility

CGC ndash Coalition for Green Capital

CIF ndash Climate Investment Funds

CSA ndash Climate Smart Agriculture

DBSA ndash Development Bank of Southern Africa

DFI ndash Development Finance Institution

DFID ndash UK Department for International Development now the Foreign Commonwealth amp Development Office (FCDO)

ECOWAS ndash Economic Community of West African States

EIB ndash European Investment Bank

ERP ndash Energy Related Products

ESS ndash Environmental amp Social Safeguards

FONERWA ndash Rwanda Green Fund

GB ndash Green Bank

GBN ndash Green Bank Network

GCF Green Climate Fund

GDP ndash Gross Domestic Product

GEF ndash Global Environment Fund

GIZ ndash Deutsche Gesellschaft fuumlr Internationale Zusammenarbeit

ICT ndash Information amp Computer Technologies

IMF ndash International Monetary Fund

IPP ndash Independent Power Producer

KFW ndash German state-owned development bank

MCC ndash Millennium Challenge Corporation

MDB ndash Multilateral Development Bank

MRV ndash Monitoring Verification amp Reporting

MSME ndash Micro Small amp Medium Enterprises

MW ndash Mega Watts

NCCF ndash National Climate Change Fund

NDB ndash National Development Bank

NDC ndash Nationally Determined Contributions

NDF ndash Nordic Development Fund

NFV ndash National Financing Vehicle

NPL ndash Non-Performing Loans

PPA ndash Power Purchase Agreement

PPF ndash Project Preparation Facility

RE ndash Renewable Energy

REDD+ ndash Reducing emissions from deforestation and forest degradation in developing countries and the role of conservation sustainable management of forests and enhancement of forest carbon stocks in developing countries

REEEP ndash Renewable Energy and Energy Efficiency Partnership

SCF ndash Strategic Climate Fund

SDG ndash Sustainable Development Goals

SIDA ndash Swedish International Development Cooperation Agency

SME ndash Small amp Medium Enterprises

SUNREF ndash AFD Green Credit line Sustainable Use of Natural Resources and Energy Finance

UNDP ndash United Nations Development Program

UNEP ndash United Nations Environment Program

WAEMU ndash West African Economic and Monetary Union

AFRICAN DEVELOPMENT BANK GROUP | 1

T he goal of this project is to explore and understand the potential for ldquoGreen Investment Banksrdquo and National Climate Change Funds (NCCFs) to increase the capacity of African countries to access and

mobilize climate finance in support of implementing NDCs and related national climate and development goals This initiative includes a high-level assessment of current market conditions identification of potential climate investment-related market barriers and constraints an indicative view of market opportunities in key climate sectors and broad recommendations on the potential for how Green Banks and National Climate Change Funds can be applied to mobilize climate finance and scale-up private climate-related investment The potential for attracting new sources of catalytic funds into African countries including but not limited to resources from the Green Climate Fund is also addressed

Green Banks and National Climate Change Funds can play an important role in mobilizing finance to support low-car-bon climate-resilient development by raising and blending capital to finance local climate infrastructure while also driv-ing an increase in private investment For countries to better access investment and fully engage the private sector the climate finance system must reorient toward national financial capacity that is able to channel capital to projects and markets where it is needed most When paired with effective grant programs through National Climate Change Funds (NCCF) and strong enabling environments and pol-icies locally-based Green Banks are powerful tools to ad-dress market needs understand local risk and drive private investment By creating and capitalizing such vehicles from a mix of domestic and international sources countries can mobilize funds from diaspora development finance institu-tions national financial institutions private investors asset managers sovereign wealth funds and more

In response to climate investment needs there are many innovative climate-finance initiatives emerging across Africa that are focused on attracting private sector climate-resil-ient investments These initiatives reduce risk and incen-tivize private sector investments in mitigation projects by promoting improved policies enabling environments and market-based interventions However bringing invest-ment to scale through mobilizing international and national climate resources remains a significant challenge Few countries have an effective climate-finance strategy in place to support implementation of NDCs in both mitigation and adaptation Barriers to accessing increased investment flows include adequate policy and regulatory frameworks knowledge of and access to the full range of climate funds and finance limited green lending capacity at commercial banks high risk perception high cost of capital high trans-actions costs local financiers preferences for large-ticket projects or government treasuries constraints on sovereign debt lack of market-specific financial products that can address risk and unlock the flow of private investment investment-grade strategies focused on expanding energy access to off-grid rural areas and more

Project Partners amp Acknowledgements

This project is sponsored by the African Development Bank (AfDB) in partnership with the Climate Investment Funds (CIF) who have joined together to explore the potential for National Climate Change Funds and Green Banks to scale up climate finance in Africa The AfDB commissioned the Coalition for Green Capital (CGC) an NGO focused on formation and implementation of the Green Bank model

Project Methodology amp Approach

The methodology and approach used for this study are designed to a) raise awareness about National Climate Change Funds (NCCF) and Green Banks (GB) and b) explore initial market conditions and high-level

1 | Executive Summary

EXECUTIVE SUMMARY | 2

recommendations towards Green Bank and NCCF forma-tion in the six study countries located in Africa

The six countries selected to participate in this study include the following as based on application of project selection criteria and approval for country participation from national representatives

xx GHANA xx ZAMBIA xx UGANDA xx TUNISIA xx MOZAMBIQUE xx BENIN

Green Banks amp National Climate Change Funds

Structured as either new institutions or adaptations of existing institutions Green Banks are designed to address market gaps and strengthen national ownership of climate finance Green Banks move problem-solving and agency to the national level empowering developing countries to better access international financial resources while

attracting private capital to green projects from foreign and domestic sources As catalytic facilities they are designed to ldquocrowd inrdquo and increase private investment in low-carbon and climate-resilient projects Green Banks typically use a blended finance approach with capitaliza-tion coming from a variety of public and private sources including bilateral donors climate funds and national treasuries In developing economies Green Banks can be most ef-fective when paired with national Green Funds to provide integrated access to an effective combination of grants and finance suited to local market conditions This ap-proach is being developed in Rwanda through an integra-tion of their existing Green Fund with a new Green Bank and was also demonstrated by the addition of a Climate Finance Facility on the Green Bank model in South Africa to complement their existing Green Fund

Green Banks have proven successful at driving clean energy investment and there are an increasing number of Green Banks and similar entities in development around the world Collectively these institutions have financed billions of dollars of low-carbon projects with innovative financing structures leveraging multiple private dollars per

Climate Banks perform many function to enhance private investment in climate projectsbull Capital mobilizerbull Capital providerbull Lead arrangerbull Innovatorbull Capacity-builderbull Feedback on

enabling environment

Green Bank or Climate BankA green finance institution with a

bull Dedicated mission ldquocrowd-inrdquo private investment to address climate changebull Geographic focus is nationally based to catalyze investment in local marketsbull Capital base in-line with climate mission a mix of public and private capital

bull Blended finance tools Market-specific finance projects

Private Investmentbull Co-finance at project level

bull Risk reduction through Green Bank financial productsbull Increased market participation

Climate Projects

Green Banks are country-driven nationally-based catalytic finance facilities designed to mobilize private investment


public dollar of financing To date the founding members of the Green Bank Network1 have leveraged $24 billion in public capital to finance more than $70 billion in clean en-ergy projects This investment has flowed into a range of

1 Green Bank Members UK Green Investment Bank Clean Energy Finance Corporation of Australia Green Technology Financing Scheme of Malaysia Green Finance Organization of Japan Connecticut Green Bank New York Green Bank

2 Green Bank Network ndash Annual Member Impact Metrics

clean energy technologies including solar offshore wind and building efficiency which have resulted in 25 million tonnes of avoided CO2 emissions annually

Green Bank Impact2

Country Recommendations

This report provides a detailed overview of the market context and potential for a Green Bank andor National Climate Change Fund to support climate investment and national climate goals for each of the six study countries Broad recommendations for each country are provided below followed by summary conclusions and recommen-dations for the study as a whole

Zambia

Despite significant financial challenges in Zambia in-cluding recent default on sovereign debt there is strong interest in a Green Bank andor NCCF to support both the Climate Smart Agriculture and energy sectors in Zambia Given the large need for green investment in Zambia for both development and climate objectives and

the progress made via existing initiatives there is a good potential for a Green Bank andor NCCF if structured properly with the existing institutional players

The most promising focus within the agriculture sector lies in broader dissemination and longer-term adoption of Climate Smart Agriculture (CSA) specifically efficient irrigation systems With funding from the international de-velopment community or climate funds patient capital can be directed to encourage greater participation by lever-aging various tools such as the provision of direct loans credit enhancements in the form of guarantees funding for technical assistance and capacity building programs or wholesale funding to local intermediaries

Green financing initiatives will have the greatest impact in the energy sector if used to address project preparation


capacity building reduction of project financing costs and risk mitigation for the variety of system risks experienced by commercial lenders or private developers

The energy and agriculture sectors in Zambia are in need of external support and a mix of green finance and grant funding are important parts of the solution The country is going through a volatile period and additive program support needs to be timed and assessed carefully For the past 3ndash5 years development of renewable energy initiatives have been constrained due to off-taker risk for large power generation initiatives making it important to address financial sustainability in parallel with efforts to drive green initiatives

In-country partners such as DBZ IDC REA and possibly ERB have been identified as potential host institutions for a Green BankNCCF based on a detailed institutional capacity assessment In addition the Zambia Off-Grid Task Force would be a relevant partner focused on a holistic view of the off-grid sector including both public and private stakeholders Each of these organizations are developing different but complementary project pipelines that tackle the issues surrounding rural electrification and economic growth including growing and strengthening the agriculture sector Climate smart agriculture is an early stage of development in Zambia therefore grant funding or green financing should be focused on scaling up CSA practices and implementing larger demonstration projects to build track record and scale in the sector In addition Zambia is in the process of considering a climate change fund in the context of emerging climate legislation which creates an opportunity to coordinate across initiatives

Ghana

There is significant opportunity in Ghana for a Green Bank or NCCF particularly to target and support renew-able energy integration across the energy and industrial sectors Furthermore with the impact of climate variability on agriculture ndash one of Ghanarsquos most important sectors ndash a Green Bank or NCCF could provide critical support to developing a more climate resilient sector

Despite the fact that Ghana is in a unique position rela-tive to its continental peers with excess power capacity the country is exposed to climate variability affecting the capacity of hydropower plants and anticipated increases

3 httpslinkspringercomarticle101007s10708-019-10132-zshared-article-renderer

in electricity demand imply that the current lsquoexcess power capacityrsquo will be short-lived Given the anticipated impacts of climate change on Ghanarsquos energy sector and the macroeconomy more broadly the government has a near-term opportunity to be proactive in a transition to a clean energy economy The integration of renewable energy to stabilize the supply of electricity will also support the governmentrsquos vision of building a larger domestic manu-facturing sector

There are numerous challenges that contribute to the slow uptake of renewable energy development in Ghana Some of the issues in the sector include high cost of financing lack of access to longer-term finance alternatives lack of or insufficient incentives such as tax rebates grid connec-tion constraints and lack of grid capacity volatility of the local currency technical knowledge limitations to operate and maintain renewable energy technologies3

Potential market interventions to consider for Ghanarsquos energy sector (in the context of a deeper market analy-sis and concept development) include targeted financial products to reduce risk concessional capital and extend-ed tenor changes in co-financing requirements technical assistance and a Project Preparation Facility

The agriculture sector is also a priority for green invest-ment as one of Ghanarsquos larger GDP drivers a key employ-er in the country and a critical source of foreign exchange generated from exports However agriculture and land use change generate a sizeable portion of the countryrsquos GHG emissions and the sector is extremely vulnerable to climate change Although the countryrsquos government has tried to support farmers with access to credit and inputs and outputs a large resource gap still exists Access to financing and to appropriate financial products represents the biggest challenge including Financing needs are too small for conventional lenders or commercial banks risk profile of agricultural borrowers particularly farmers are considered too risky agriculture as a sector is perceived to generate low returns or as unprofitable high interest rates and time lapse between CSA adoption and realiza-tion of benefit is seen as long and risky by farmers

Potential host or partner institutions for a Green Bank or NCCF program are explored in the report and include players such as the Ghana Infrastructure Investment Fund (created in 2014) and the potential new National


Development Bank which has been under discussion by the government starting in 2020 Regardless of the insti-tutional form a new climate finance initiative will require significant new technical capacity skills and lending capital to have maximum impact The new National Development Bank presents the opportunity to create an institution that is fit-for-purpose and aligned to both the economic and climate needs of the country from the outset

Benin

Based on a high-level view of market dynamics existing policy and regulatory initiatives and the suite of poten-tial interventions identified the energy sector in Benin is considered a strong candidate for support from a Green Bank and a National Climate Change Fund program In terms of the energy sector the countryrsquos dependence on neighboring nations for imported oil results in the energy supply being expensive and potentially unreliable In addi-tion the weak electricity infrastructure results in relatively high losses across transmission and distribution systems Integrating a greater proportion of renewables into the energy mix could result in large energy cost reductions over the medium to long term would contribute to greater energy independence and would allow Benin to prepare for anticipated energy demand spikes while ensuring progress towards achieving climate targets A Green BankNCCF initiative would be well positioned to address energy sector challenges ranging from inadequate funding to lack of technical expertise and capacity

Beninrsquos agriculture sector also surfaces as having sig-nificant potential for leveraged investment With the governmentrsquos focus on building a climate resilient agri-cultural sector two specific areas have been identified in the National Adaptation Programme of Action (NAPA) as priorities (i) the promotion and integration of renewable energy and (ii) the adoption of improved irrigation includ-ing efficient irrigation systems Furthermore through the countryrsquos strategic agriculture development plan (PSDSA) CSA practices have already been identified as a key intervention by government ndash providing further scope for a green finance facility or NCCF to complement existing na-tional targets and goals Through the various development plans that the government of Benin has adopted to help transition the agricultural sector to a more climate resilient state the greatest current gap is the lack of financing al-ternatives and technical knowledge Several development

4 Phillipe Trape AfDB Economist interview Sept 4 20205 Hela Cheikhrouhou interview October 19 2020

partner-funded programs have helped to conduct prelimi-nary studies on suitable solutions but fall short of identify-ing appropriate financing mechanisms

The government has established a number of policies frameworks and rolled out incentives to provide for an im-proved enabling environment in key climate sectors Some of the constraints that a Green Bank and NCCF could assist to alleviate include

xx Injection of concessional capital to reduce the cost of funding for local banksxx Provision of technical assistance and capacity building

for off-grid renewable energy projects and CSA practicesxx Establish a project preparation facility to support early

stage projects and small local developers to scale to a size that is commercially bankable andxx Long tenor financing that could be on-lent through

either a new financing entity or an existing organization

Several existing institutions in Benin work on channeling green finance toward projects which could be explored for potential role as a host or partner for a Green bank or NCCF program These include the National Fund for Environment and Climate (FNEC) the rural electrification agency (ABERME) or leading commercial banks like Ecobank or Coris Bank

Tunisia

Despite the obstacles presented by the structure of the fossil-fuel based domestic electricity market Tunisia has significant potential for renewable energy deployment across the country especially from wind and solar re-sources While renewables currently do not play a signifi-cant role in Tunisiarsquos electricity mix their importance could grow in the coming years especially if renewable energy projects are developed with the purpose of creating more jobs to tackle the countryrsquos unemployment challenge4 5 With a relatively high urbanization rate Tunisiarsquos green cities sector is also a potential priority for the capacity of a Green Bank or NCCF to help catalyze investment and support sustainable growth Both sectors have gained some traction in recent years as development partners and multilateral development banks have provided finan-cial and non-financial support and involved a variety of different stakeholders


With Tunisiarsquos fiscal constraints identifying sources of co-financing from the government to seed any new Green Bank initiative will likely be challenging As seen in other countries one option for raising capital is for the government to issue bonds to raise the needed funding However in light of the countryrsquos recent sovereign credit rating downgrade and growing debt levels and budget deficits access to financing with amenable terms is po-tentially not a strong option in the near term Alternative structures will need to be explored to cope with this spe-cific circumstance

The Tunisian government has made efforts in recent years to provide clarity and guidance on development priori-ties and related targets There are various opportunities across the countryrsquos energy sector and its green cities agenda for a Green Bank and a NCCF to accelerate the rate of sustainable development Interventions focusing on project preparation tailored products including bridge financing concessional financing and guarantee mecha-nisms in the energy sector have been identified as having the strongest potential In terms of the green cities plan a NCCF and Green Bank are likely to be most impactful in terms of supporting municipalities with the technical as-sistance and capacity building support required to reform policies and improve strategic planning On the financing side concessional loans or grants will likely be the most effective intervention given the limited resources of most municipalities and limited borrowing capacity

In terms of potential host or partner institutions sever-al options are identified including the Energy Transition Fund (FTE) which currently is a grant focused institu-tion but could be expanded to offer financing as well as a new initiative for a Renewable Energy Fund (REF) that could include funds from the Caisse des Deacutepocircts et Consignations (CDC) the national utility (STEG) and the African Development Bank

Uganda

Uganda is currently exploring the creation of a cli-mate-dedicated National Financing Vehicle (NFV) as an innovative mechanism to mobilize both national and inter-national climate finance resources directed to high impact climate action The creation of an NFV is aligned with the Government of Ugandarsquos national planning objectives and green growth development goals as current investment trajectories are not on track to meet these goals par-ticularly from the private sector The low carbon-sector

currently faces a substantial investment gap with related implications for economic growth

A Uganda climate-focused NFV will require a flexible structure that can attract both domestic and international climate finance Additionally it would require a special re-lationship with the Government of Uganda designed to in-crease private sector investments in the local low-carbon market An integrated approach (with both grants and finance) is required to unlock investment in green projects in Uganda Grants will continue to be required to support project preparation and some market subsidization and finance is essential to bring markets to scale and mobilize private investment

Following these insights and based upon a ldquodeci-sion-treerdquo type options analysis conducted for the UNDP and Government of Uganda the National Development Bank (UDBL) has been identified as the most viable option to host a Uganda climate-focused NFV This path would leverage a strong existing national institution and is based on a balance of strategic concerns and consideration of local context Based on these findings the Government of Uganda is working with UNDP to commission a feasi-bility study to design and structure the proposed NFV to mobilize climate green financing to through a partnership with a local financial institution Strengthening the institu-tional capacity of the Uganda National Development Bank to mobilize climate finance resources and offer afford-able and appropriate financing solutions to green proj-ects could help the country recover from the COVID-19 economic crisis and build opportunities for green growth Additionally Uganda would benefit from a climate-dedicat-ed NFV to achieve national climate ambitions and related targets as established in Ugandarsquos Vision 2040 National Development Plan (NDPIII) and Nationally Determined Contributions (NDC) It is also important to note that despite these opportunities Uganda faces a number of challenges related to mobilizing domestic and internation-al financing for infrastructure and actually implementing these projects

Mozambique

Both a Green Bank and a National Climate Change Fund could prove useful for Mozambique With current market dynamics a catalytic green finance facility seems most appropriate for the clean energy sector to address the financing challenges for both off-grid solutions and grid connected projects Off-grid areas will still need additional


support to improve the operating and enabling environ-ment but given the progress made to date the need for a green finance facility to accelerate such progress in the near term is clearGrant funding through a NCCF is applicable to both the energy and agriculture sectors Within energy grant funding will be helpful for the poorest regions or districts across the country where the tariff gap to develop com-mercially viable projects is largest For the agriculture sector (with a specific focus on the adoption of CSA prac-tices) grant funding should be the primary tool used to develop the sector from the ground up The few programs that have been implemented to date provide a good base from which to launch complementary initiatives but the amounts of grant funding that have been directed to this area to date remain relatively small in scale

In summary Mozambique is still in relatively early stages of growth in the clean energy electrification and agriculture sectors As such the focus should be on incubating new models and addressing risks that are common to early stage projects in the near term vs launching a full-fledged green bank program Some of the key constraints that can be addressed through the establishment of a catalytic green finance facility andor NCCF include


for renewable energy projects (grid connected and off-grid) and to develop more technical knowledge of sustainable farming practices including the adoption of CSA xx Support for risk mitigation mechanisms such as

guarantee structures aggregation structures for smaller projects andor micro-loan products that can stimulate private sector participation and toxx Establish a project preparation facility to support early

stage projects and small local developers to scale to a size that is commercially bankable

Mozambique currently has several development part-ner-funded programs focused on climate and clean energy and there is significant potential to partner with and scale the levels of investment in these sectors with local partners In this context several institutions ex-ist that could serve as potential host or partners of any green bank or NCCF program including the National Sustainable Development Fund (FNDS) and the National Energy Fund (FUNAE) Mozambique also faces key

challenges related to mobilizing domestic and internation-al financing for infrastructure and related capacity con-straints as required to effectively implement such projects

Summary Conclusions and Recommendations

The high level scoping and market view provided through this project indicate that a combination of Green Banks adjacent to National Climate Change Funds have strong potential to help scale private investment in support of national climate and sustainable development goals in the six study countries A combination of green grant pro-grams alongside catalytic climate finance facilities focused on the low-carbon and sustainable development sectors has potential to support expanded private sector partici-pation and more effectively mobilize support from global development partner institutionsTwo sectors stand out as consistent priorities across the study countries including renewable energy and climate smart agriculture Green cities infrastructure is another potential priority sector particularly in Tunisia An in-depth market analysis to determine the scale and nature of investment needs across these sectors and to identify project pipelines would be the next step towards fleshing out the nature of market barriers and specific market interventions financial products and related grant supports that are needed in each to unlock private invest-ment and leverage climate investment

Based on this initial assessment of country needs objec-tives and institutional capacities it appears that near-term Green Bank and NCCF exploration would be appropri-ate in Ghana Tunisia Zambia Uganda and Benin In Mozambique based on the existing programs and work to date it seems best to start with forming a National Climate Change Fund to provide initial grant capacity and then to potentially grow into an expanded green finance capacity In all countries an in-depth market and institu-tional analysis would be required to flesh out application of this model and define country-specific approaches In all countries key issues such as capitalization potential debt sustainability and interaction with existing program and institutions will need to be addressed

Exploration of new climate finance capacity should be integrated with existing programs including the potential expansion of existing National Climate Change Funds or other grant programs where they exist Based on the


market analysis here it is clear that scaling finance is crit-ical to meeting investment targets but that grants remain an essential complement to financing regardless of a countryrsquos level of development In addition it is recom-mended that potential Green Banks in the six countries be integrated with an effective project preparation support including via the creation of a Project Preparation Facility (PPF) Robust project pipelines and properly structured projects will be essential to effectively utilize any additional financing capacity

The typical next steps towards Green Bank exploration and development include the following major compo-nents It is important to note that all of these actions need to be gender-responsive to ensure that Green banks and NCCFs are gender-inclusive where women and men are equally represented at all position levels

1 Conduct an in-country mission to identify a lead champion for a new climate finance initiative and the intended host institution

2 Conduct an in-depth market analysis to identify and quantify the project pipeline for a new Green BankClimate Finance Facility andor a complementary NCCF across all priority sectors

3 Define and develop the structure for a proposed Green Bank andor NCCF including host (or incorporation if needed) governance and business plan

4 Define and develop the structure of the necessary project preparation facility (or the interface with an existing PPF)

5 Identify and engage with potential co-capitalization partners

6 Define the indicative structure of an AfDB loan to provide initial capitalization of the Green Bank alongside an initial loan from the Green Climate Fund

Green Banks NCCFs amp Economic Recovery

COVID-19 presents an unprecedented challenge to Africa and the global community A first wave response clearly needs to focus on the urgent need for direct aid debt-relief and emergency measures to address the immediate public health and economic crisis that is facing all developing countries

As we look towards what will be needed to progress from emergency aid relief to medium-to-longer term measures to build resiliency and re-grow developing economies the role of catalytic innovative finance capacity to support sustainable infrastructure and social investment through mobilizing public and private resources will be essential

Green Banks and National Climate Change Funds are well positioned to fill this role and support economic re-covery and job growth through the re-building of green development sectors such as agriculture renewable energy and green cities

Green Banks (alongside NCCFs) are designed to catalyze green investment with a focus on blended finance and crowding-in private investment through financial instruments designed to serve projects that

are commercially viable ndash but not yet bankable ndash in the green sector Green Banks alongside NCCFs can support economic recovery and expansion due to the COVID-19 pandemic in several ways

xx Reduce Risk ndash Green Banks are purpose-built to understand and address investment risk in a time of rapidly changing market conditions xx Build National Capacity ndash Green Banks and

related Project Preparation Facilities are designed to build the green lending capacity of local financial institutions and the ability of project developers to bring forward bankable and commercially viable projectsxx Drive Growth ndashThe low carbon-sector faces a

substantial investment gap which if addressed can be a powerful source of new economic growth in this critical period xx Increase Access to Financial Resources ndash The

catalytic investment model offered through Green Banks adjacent to NCCFs can increase access to resources from climate funds and development partners based on application of a blended finance approach


7 Engage in the Funding Proposal process with GCF or other partners to co-capitalize a new Green Bank via the AfDBs role as an Accredited Entity

8 Eventual capitalization formation and operationalization of the new Green Bank(s)

To advance these recommendations into action requires country-driven leadership and commitment combined with a pool of technical assistance funding to support market assessment and Green BankNCCF design and execution It also required the partnership of a suitable GCF Accredited Entity ndash a role that naturally fits with the capacity and interest of the AfDB

Systemic Approach

There is an opportunity to support Green Bank develop-ment at scale in Africa tailored to country-specific mar-ket dynamics existing funding and financing programs and through an understanding of investment gaps and opportunities Green Bank formation rests upon three core elements

1 Identifying a well-positioned host institution and appropriate structure

2 Securing affordable seed capitalization from sources with investment objectives that well matched to the catalytic Green Bank model alongside grant funding for project preparation needs

3 Securing up-front grant funding for Green BankNCCF design and structuring work

To date Green Bank formation has required a time and labor intensive process on a country-by-country basis Barriers and challenges have included

xx Lack of direct-access accredited entities to provide climate-oriented loans and equity to capitalize Green Banks and NCCFs xx One-off efforts to secure technical support grants for

Green Banks design and structuring and actual seed capitalizationxx A lack of clarity on replicable institutional approaches

to bring the catalytic climate finance model to scalexx Lack of information on project pipelines and the

financial interventions that could bring the green sector more quickly to scale

Green Bank and NCCF development also requires gen-der-responsive data for the financial sector concern-ing employment in financial institutions and for gender

inclusiveness concerning design of and access to specific financial products

Working with an umbrella local development finance in-stitution such as AfDB in coordination with other interna-tional development partners presents an opportunity to coordinate across these challenges and build systemic capacity By ldquobundlingrdquo several Green Bank initiatives together into systemic multi-country initiatives could allow for better access to (1) technical assistance support for design and structuring work (2) coordinated and facil-itated capitalization via a combined application to the Green Climate Fund through an Accredited Entity andor to other sources of capital from development finance institutions or other Climate Funds and (3) development of replicable Green Bank financial products andor NCCF grant programs designed to meet common needs in pri-ority sectors across multiple countries with similar market challenges

Overall on both the individual country level and at a sys-temic multi-country level the Green Bank model adjacent to National Climate Change Funds holds tremendous potential to build country driven gender inclusive capacity to advance climate investment in support of national green growth and climate objectives


2 | Project Overview and Introduction

PROJECT OVERVIEW AND INTRODUCTION | 11

Project Goals

The goal of this project is to explore and understand the potential for ldquoGreen Investment Banksrdquo and National Climate Change Funds (NCCFs) to increase the capacity of African countries to access and

mobilize climate finance in support of implementing NDCs and related national climate goals This initiative includes a high-level assessment of current market conditions identification of potential climate investment-related market barriers and constraints an indicative view of market opportunities in key climate sectors and broad recommendations on the potential for how Green Banks and National Climate Change Funds can be applied to mobilize climate finance and scale-up private climate-related investment The potential for attracting new sources of catalytic funds into African countries including but not limited to resources from the Green Climate Fund is also addressed

Green Banks and National Climate Change Funds can play an important role in mobilizing finance to support low-carbon climate-resilient development by raising and blending capital to finance local climate infrastructure while also driving an increase in private investment For countries to better access climate finance and fully en-gage the private sector the climate finance system must reorient toward national financial capacity that is able to channel capital to projects and markets where it is needed most When paired with effective grant programs through National Climate Change Funds (NCCF) and strong enabling environments and policies locally-based Green Banks are powerful tools to address market needs under-stand local risk and drive private investment By creating and capitalizing such vehicles from a mix of domestic and

1 Our World in Data httpsourworldindataorgco2-and-other-greenhouse-gas-emissions~text=Africa20and20South20America20areto20international20aviation20and20shipping

international sources countries can mobilize funds from diaspora national financial institutions private investors asset managers sovereign wealth funds and more These vehicles and funds can support the implemen-tation of Nationally Determined Contributions (NDCs) CIF Investment Plans CIF Strategic Plans for Climate Resilience and NDCs and progress towards Sustainable Development Goals (SDGs) As noted by Dr Anthony Nyong AfDB Director Climate Change and Green Growth ldquoGreen Financing Vehicles are increasingly recognized as a powerful instrument to mobilize private sector capital for low carbon and climate resilient development Their ability to access even limited amounts of local currency finance presents significant opportunities to manage risk attract concessional finance from climate funds and crowd in private sector finance We are excited to work with the team from CGC and look forward to presenting progress reports at the Green Bank Summit in 2020 and COP26rdquo

Project Context

Although Africarsquos has contributed only 3ndash4 of total global carbon emissions the continent remains among the worldrsquos most vulnerable regions to the effects of climate change1 With temperature increases already on record sub-Saharan Africa is experiencing more intense and more frequent climate extremes Impacts include increasing droughts heat waves and crop failures and extreme flood-ing The resulting decline in food production shortage of clean drinking water flooding of coastal cities impacts on natural ecosystems and biodiversity and spread of disease such as malaria have profound implications for countries across the continent It is also important to note that across Africa women among the more vulnerable groups of those affected by climate change due to gender inequal-ity and related issues Climate change is a major threat to


sustainable development and will impact all aspects of economic growth and efforts to reduce poverty

Given the severe implications of climate change for Africa governments across the continent endorsed the historic 2015 Paris Climate Accord and have set ambitious com-mitments through their Nationally Determined Contributions (NDCs) towards climate adaptation and mitigation The level of investment needed to achieve these commitments is subject to debate but estimates of Africarsquos climate adapta-tion costs alone due to past emissions are between $7ndash15 billion annually by 2020 On a 2degC pathway adaptation costs could reach $35 billion per year and on a 35ndash4degC pathway the cost of adaptation for Africa could reach $50 billion per year by 20502

Overall it is estimated that climate change presents a $3 trillion investment opportunity in Africa by 20303 To bridge this climate investment gap to meet NDC commitments significant climate finance and resource mobilization well beyond current levels of public andor private climate in-vestment is required Public sector funding from develop-ment partners and through climate funds is essential but bringing climate investment to scale will require engaging the private sector and leveraging significant private capital through equity loans andor project finance across all climate-related sectors

In response to these needs there are many innovative climate-finance initiatives emerging across Africa that are focused on attracting private sector climate-resilient investments These initiatives reduce risk and incentiv-ize private sector investments in mitigation projects by promoting improved policies enabling environments and market-based interventions (Specific programs are referenced in the country-specific chapters of this report) However bringing climate finance to scale through mobi-lizing international and national climate resources remains a significant challenge Few countries have an effective climate-finance strategy in place to support implementa-tion of aggressive NDCs in both mitigation and adaptation Barriers to accessing climate finance include adequate policy and regulatory frameworks knowledge of and ac-cess to the full range of climate funds and finance limited green lending capacity at commercial banks constraints on sovereign debt lack of market-specific financial prod-ucts that can address risk and unlock the flow of private

2 Africarsquos Adaptation Gap Technical Report Climate-change impacts adaptation challenges and costs for Africa AMCEN UNEP Climate Analytics

3 Climate Policy Initiative AfDB Climate Finance Day COP24 2018

investment strategies focused on expanding energy access to off-grid rural areas lack of gender-responsive policies and more


This project is sponsored by the AfDB in partnership with the Climate Investment Funds (CIF) who have joined together to explore the potential for National Climate Change Funds and Green Banks to scale up climate finance in Africa The AfDB commissioned the Coalition for Green Capital (CGC) an NGO focused on formation and implementation of the Green Bank model

xThe African Development Bank (AfDB) is a leading development institution on the continent focused on promoting economic development and poverty reduction It engages with the full range and complexity of development challenges in Africa The Bank has integrated operations lending directly from the public and private sectors through a variety of instruments The Climate Change and Green Growth Department assists Country Programs Departments to manage the Bank Grouprsquos energy operations in Regional Member Countries (RMCs) Climate change and environmental issues are addressed by incorporating them into the Bank Group supported operations and giving them the visibility required

This project was conducted under the guidance of Mr Gareth Phillips AfDB Manager PECG1 Additional input and assistance was provided by the Directors Managers and staff of the following AfDB Country Offices Departments and Divisions

xx Climate Change and Green Growthxx Financial Sector Developmentxx Country Offices of Mozambique Zambia Benin

Uganda Ghana Tunisia

xThe Climate Investment Funds (CIF) have identified the AfDB as an implementing agency Established in 2008 as one of the largest fast-tracked climate financing instruments in the world the $83 billion CIF gives developing countries worldwide an urgently needed jump-start toward achieving low-carbon and climate-resilient development The CIF provides developing countries with grants concessional loans


risk mitigation instruments and equity that leverage significant financing from the private sector multilateral development banks (MDBs) and other sources The Climate Investment Funds include four key programs

xx Clean Technology Fund (CTF)xx Forest Investment Program (FIP)xx Pilot Program Climate Resilience (PPCR)xx Scaling Up Renewable Energy Program (SREP)

xThe Coalition for Green Capital CGC has formed Green Banks in the US and in Africa is currently leading efforts to form a new National Climate Bank in the US serves as the Co-Secretariat to the global Green Bank Network supported the Development Bank of Southern Africa (DBSA) in forming the Southern Africa Climate Finance Facility is in the process of designing and launching a Green Bank in Rwanda and supports numerous other Green Bank and climate finance facility efforts around the world CGCrsquos approach to Green Bank formation is grounded in the understanding that the specific structure of local Green Banks ndash whether formed via a new purpose-built entity or as an adaptation of an existing institution ndash should be determined based on local market considerations policy environments and institutional capacity While finance is inherently global capital deployment is local CGC believes there is no one-size-fits-all for Green Bank design and that approaches must be tailored to specific market conditions and country-driven priorities

The CGC project team on this study includes

xx Andrea Colnes ndash Director of Global Green Bank Developmentxx Rob Youngs ndash Director International Programsxx Sidonie Gwet ndash Program Director Africa xx Jennifer Louie ndash Consulting finance professionalxx Leo Luo ndash Project consultantxx Wagane Diouf ndash Medina Finance



recommendations towards Green Bank and NCCF for-mation in the six study countries located in Sub-Saharan Africa

NCCF and GBs are considered complementary strategies towards building national capacity to mobilize domestic and international finance in support of low carbon and climate resilient investment This AfDBCIF Knowledge Product will contribute significantly to efforts to create institutions that can access finance for the implementation of programmatic activities in SCF countries

PROJECT COMPONENTS The project includes two major components

1) Prepare a Knowledge Product

The knowledge product will frame the strengths and weaknesses of the Green Bank andor National Climate Change Fund models in a range of countries in Africa The knowledge product will have two broad components

xIt will describe relevant institutional infrastructure and define the steps required to design form capitalize and launch Green Banks andor to establish an NCCF including fiscal legal and regulatory options It will also provide examples of how existing GBs or NCCF have raised and leveraged finance both in Africa and elsewhere

xThe knowledge product will provide a high-level summary of key market barriers opportunities and the most effective focus for a new Green Bank andor NCCF to help drive low-carbon investment in each of the six project countries This information will be based on a combination of desk research and stakeholder outreach around the following topics

xx Market dynamics market barriers and opportunities by sector (energy water agriculture waste urban development)xx National development and climate-related goals

policies and initiativesxx Project pipeline potential by sectorxx Capacity considerations and constraints in the

commercial sector and the public sectorxx Key stakeholders relevant to driving low-carbon

investment


The knowledge product will be crafted in the context of a gender-responsive focus and it is noted that country- specific Green Bank and NCCF initiatives will require gender assessments and related action plans

2) Convene a 3-day South-South Knowledge Exchange Workshop

An interactive and dynamic knowledge exchange work-shop will be convened with all participating countries to 1) build awareness of the Green Bank NCCF models 2) identify opportunities for specific country-led Green Bank NCCF projects 3) establish relationships to develop these opportunities 4) identify specific action steps to advance potential Green Bank and NCCF initia-tives on the continent

PROJECT METHODOLOGY To implement these ele-ments the following methodology was applied

1 Country Selection Criteria

To support selection of the six participating study coun-tries the following criteria were applied Using these criteria the group of study countries were selected to represent a range of geographies and levels of economic development They also include countries that have the capacity andor conditions that are consistent with form-ing new catalytic green finance initiatives and or national climate change funds based on potential project pipeline and market opportunities

The project was designed to apply to CIFSCF Eligible Countries The Climate Investment Funds lists 23 coun-tries as currently receiving funding from the Strategic Climate Fund (SCF) Those countries include Benin Burkina Faso Cameroon Congo Republic Cote DrsquoIvoire Democratic Republic of Congo Ethiopia Gambia Ghana Kenya Lesotho Liberia Madagascar Malawi Mali Mozambique Niger Rwanda Sierra Leone Tanzania Tunisia Uganda Zambia

xCountry Criteria

1 Strategic Climate Fund (SCF) countries as defined by the Climate Investment Funds secretariat

2 Countries with a positive investment climate (or growing government efforts to foster a positive investment climate) for priority green sectors This might include

a Established national energy plans and goals (including renewable energy targets)

b Stable and positive regulatory environment with strong market signals

c Emerging banking sector andor capital markets (local regional or international) with sufficient potential to engage for increased private investment

4 Countries with reasonable potential for a pipeline of ldquoinvestablerdquo projects

5 Countries with developed National Climate Plans and green development goals and targets

6 Countries with reasonable economic and political stability and favorable investment climate in green sectors

7 Countries with an identified credible and capable national champion(s) andor an identified host institution to work with

8 Countries with reasonable level of positive engagement with bi-lateral aid agencies DFIs and other donors in green sectors

xOther Characteristics

In addition to the criteria noted above attention was given to the following characteristics intended to support the inclusion of a range of size and economic characteristics from a range of countries

1 Close attention to selecting a group of countries that represent a diversity of potential approaches to creating and capitalizing NCCFsGreen Banks in the region

2 Countries that represent both small and larger economies

3 A mix of countries that include a diversity of faster growing economies as well as slower growth countries

4 A balance of countries that already have established NCCFs (eg Benin Mali Rwanda and Ethiopia) and those that do not (eg Cote DrsquoIvoire or Tunisia)

2 Country Engagement

Once study countries were identified based on applica-tion of the criteria as noted above direct outreach was conducted to national parties of interest and jurisdiction (either through the Ministry of Finance GCF Focal Point or related climate offices and officials) to seek their direct approval for participation in this study


3 Country Outreach and Research

The study focused on engagement of carefully selected country stakeholders to help identify key market bar-riers opportunities and the most effective focus for a new Green Bank andor NCCF to help drive low-carbon investment Due to COVID 19 related travel constraints outreach to stakeholders was conducted remotely via video and phone interviews

Stakeholder groups identified and interviewed in each country included the following In general approximate-ly 15ndash25 stakeholders were interviewed in each study country

xx Project developers (across sectors including energy agriculture forestry water green cities etc)xx Government ministries (Environment Energy Finance)xx Commercial banks National Development Banks

Central Banks and asset managersxx National planning entitiesxx Technical partnersxx DFIs and donor entitiesxx National Development Banks and partners

Stakeholder interviews were organized around exploring the following areas of information




investment

4 Report and Recommendations

The central output of this project is this knowledge product intended to frame the strengths and weakness-es of the Green Bank andor National Climate Change Fund models in the selected study countries It provides a high-level view of market opportunity and needs and frames the potential for Green Bank or NCCF formation in these countries The report describes the characteristics of suitable (new or existing) institutions as potential hosts for a Green Bank or NCCF and a high-level view of poten-tial capital sources for these climate finance institutions

The report also presents a ldquoGreen Bank Checklist as a framework and guide for determining if a Green Bank andor Green Fund is a fit with the capacity and market condi-tions in selected countries This framework addresses the following factors

xx Identifying local championsxx Identifying effective host institutions andor the viability

of creating a new GB NCCF institutionxx Building adequate project pipeline of where Green

Bank NCCF could initially focusxx Identifying the most compelling market focus for Green

Bank NCCF activityxx Identifying an appropriate mix of publicprivate

capitalization based on market needxx Ensuring that Green Banks crowd in vs crowd out

private investmentxx Engaging commercial finance partnersxx Identifying early supporters from the donor and DFI

community

5 Interactive Knowledge Exchange Workshop

Once conditions related to COVID 19 allow the AfDB will invite participating countries to convene an interactive and dynamic knowledge exchange workshop to 1) build awareness of the Green Bank NCCF models 2) identify opportunities for specific country-led GBNCCF projects 3) establish relationships to develop these opportunities 4) identify specific action steps to advance potential Green Bank and NCCF initiatives on the continent including gender-responsive institutional design This workshop will have an action-oriented focus specifically designed to spark the process of Green Bank and NCCF formation in selected countries The workshop will also explore institu-tional capacity building for development of Green Banks and NCCFs within each country

6 Present the Knowledge Product at International Climate Events

Again once conditions related to COVID 19 allow the findings of this study will be presented at an internation-al climate event and an African climate event to engage international and African countries in exploring application of the Green Bank NCCF model and to solicit input to inform action-related recommendations Given the antici-pate path through the current global pandemic it is antici-pated that the international venue will be COP26 in late fall of 2021 The African venue remains to be determined


3 | Project Countries


T he six countries selected to participate in this study are noted below as based on application of the selection criteria described above and

specific approval for country participation as secured via the following national representatives

GHANA

ZAMBIA

UGANDA

TUNISIA

MOZAMBIQUE

BENIN

Detailed information on each participating country is provided in the country-specific narrative section of this report


4 | Introduction to the Green Bank Catalytic Green Finance Facility Model


C limate change must be addressed with bold and innovative solutions designed to deploy new technologies rapidly and at scale Green Banks are specifically intended to address this need by

raising and blending capital to finance local climate infrastructure while catalyzing a sharp increase in private investment For countries to better access climate finance and fully engage the private sector the climate finance system must reorient toward national financial capacity that is able to channel capital to projects and markets where it is needed most When paired with effective grant programs through National Climate Change Funds (NCCF) and strong enabling environments and policies locally-based Green

Banks are powerful tools to address market needs understand local risk and drive private investment Structured as either new institutions or adaptations of existing institutions Green Banks are designed to address market gaps and strengthen national ownership of climate finance Green Banks move problem-solving and agency to the national level empowering developing countries to better access international financial resources while attracting private capital to green projects from foreign and domestic sources As catalytic facilities they are designed to ldquocrowd inrdquo and increase private investment in low- carbon and climate-resilient projects Green Banks typically use a blended finance approach with capitaliza-tion coming from a variety of public and private sources








Climate Projects


INTRODUCTION TO THE GREEN BANK CATALYTIC GREEN FINANCE FACILITY MODEL | 20

including bilateral donors climate funds and national treasuries

In developing economies Green Banks can be most ef-fective when paired with national Green Funds to provide integrated access to an effective combination of grants and finance suited to local market conditions This ap-proach is being developed in Rwanda through an integra-tion of their existing Green Fund with a new Green Bank and was also demonstrated by the addition of a Climate Finance Facility on the Green Bank model in South Africa to complement their existing Green Fund In each of these cases the Green Bank provides innovative green financ-ing products adjacent to a Green Fund or NCCF which provides complimentary grants to support project prepa-ration reduction of early stage project costs or other grant-based strategies to support project development and bankability

However while Green Banks ndash structured as either new institutions or adaptations of existing institutions ndash can strengthen national ownership of climate finance there is no one size fits all recipe for their formation As locally- embedded country-driven institutions Green Banks or similar catalytic climate finance facilities have to be de-signed to fit the specific conditions of local markets While they can draw lessons from initiatives in similar econo-mies it is important to recognize that the application of the GB model in high-income OECD countries like the UK (with sophisticated finance capacity and large pools of local capital) is generally not a fit with the needs of emerging markets In all cases a critical element of Green Bank design includes mission-specific investment criteria and related monitoring evaluation and reporting to ensure consistency with green and climate-related investment objectives

In developing countries Green Banks have to be designed to complement existing development finance capacity and where they exist the role of National Development Banks It is also more common that Green Banks in de-veloping countries are formed alongside or as part of an existing host institution ndash which raises the need to ensure a dedicated mandate and specific value-added market focus The need to address capacity constraints develop project pipeline expand the green financing capacity of the commercial financial sector and address significant barriers to private investment all point towards the need for tailor-made approaches to meet the market needs in developing countries Also unlike many OECD countries

the role of grants in many low-income countriesrsquo green sectors will continue to be critically important It is worth noting that in CGCrsquos Green Banks projects in both South Africa and Rwanda a critical component was maintaining and working closely with grant-based capital or ldquoproject preparation facilityrdquo funds to complement financing activi-ties and provide project developers the needed ldquofull suiterdquo of support to projects in incipient green sectors Finally it is important for developing countries to approach structuring Green Banks in ways that meet the require-ments of international capitalization through Climate Funds andor donor institutions which all come with different priorities

Green Banks (also referred to as Climate Finance Facilities) provide financing in various forms targeting commercially viable clean energy technologies that for a host of reasons cannot attract debt at a cost of capital or tenor that allows customers to move forward with proj-ects Green Banks fill market gaps and pair their capital with private investors to ldquocrowd-inrdquo capital and make clean energy markets more efficient Green Banks are self- sustaining facilities meaning they provide their capital at a cost commensurate with risk and sufficient to gener-ate revenue to operate the facility on a break-even basis

Key elements of the Green BankCFF model include

xx Focused institutions created to mitigate and adapt to climate changexx Use of blended finance to de-risk and catalyze private

investment with innovative funding structuresxx Use of debt warehousing credit-enhancing and

related instruments to enable cost-effective long-term sustainable financingxx Designed to support commercially viable and

sustainable projects that are gender-inclusivexx Complement existing funders and programsxx Market-oriented and flexible adjusting offerings

products and partnership structures to suit the project needs

Green Banks have proven successful at driving clean energy investment and there are an increasing number of Green Banks and similar entities in development around the world Collectively these institutions have financed billions of dollars of clean energy projects with innovative financing structures leveraging multiple private dollars per public dollar of financing To date the founding members of the Green Bank Network have leveraged $24 billion


in public capital to finance more than $70 billion in clean energy and low-carbon projects4 This investment has flowed into a range of clean energy technologies including



solar offshore wind and building efficiency which have resulted in 40 million tonnes (MT) of avoided CO2 emis-sions annually

Green banksclimate finance facilities as nationally-based catalytic finance institutions designed to mobilize private investment

Green Bank Impact5

Green BankClimate Finance Facility(either purpose built or within existing institution)

Private Capitol(capitol markets

green bonds etc)

Climate Funds(GCF CIFs GEF

AF etc)

Development Finance

Institutions(MDBs NDBs etc)

Public Appropriations

(national budgets carbon tax revenue etc)

The Green Bank uses a range of financial structures to unlock markets reduce risk and address specific market needs

CommercialInvestors

CampI Solar Fund or Warehouse

Product B Product C

CommercialInvestors

Co-Invest

Co-Invest

Climate Project

CampI Solar Project

CampI Solar Project

CampI Solar Project

Climate Project

1 Multiple Investors can capitalize a Green Bank

2Green Bank establises products for repeatable financing of a target market

3Green Bank also directly finances projects

4Green Bank has mobilization targets and seeks to lsquocrowd inrsquo commercial investors


GREEN BANK CASE STUDY 1

Southern Africa DBSAClimate Finance Facility

1

DESIGN GRANT CASE STUDY

CLIMATE FINANCE FACILITY

JUNE 2019

EXECUTIVE SUMMARY SYNOPSIS The Development Bank of Southern Africarsquos (DBSA) Climate Finance Facility (CFF) is a specialized lending facility designed to increase private investment in climate-related infrastructure projects in the Southern African Development Community (SADC) region which faces significant climate mitigation and adaptation challenges The CFF is the first time the ldquogreen bankrdquo model has been applied to an emerging market Green banks are public quasi-public or non-profit entities established specifically to facilitate private investment into low-carbon climate-resilient infrastructure This landmark facility offers significant proof-of-concept value to middle- and low-income countries seeking to scale up the private investment required to meet commitments laid out under the Paris Agreement The CFF will deploy capital to fill market gaps and crowd in private investment targeting projects that are commercially viable but cannot attract market-rate capital from local commercial banks at scale without credit enhancement The Facility will start by utilizing two main credit enhancement instruments (i) long-term subordinated debt and (ii) tenor extension The CFF will prioritize investment opportunities based on target country needs and priorities identified in Nationally Determined Contributions (NDCs) under the Paris Agreement and to meet the United Nations Sustainable Development Goals (SDG) goals The CFF will primarily target South Africa as well as other Rand-based countries including Namibia Lesotho and Eswatini The CFF raised an initial $110 million with DBSA and the Green Climate Fund (GCF) as the two anchor funders The structuring and launch of the CFF offers insights for other practitioners developing or investing in green banks including the importance of specialized partners when replicating existing models in new markets leveraging local institutional infrastructure early and continuous engagement with target co-investors and approaches to ensure additionality of financing activities

The Climate Finance Facility is the recipient of Convergence Design Funding

Host Development Bank of Southern Africa (DBSA)

Mandate To incentivize private investment in low-carbon and climate-resilient infrastructure and catalyze greater overall climate-related investment in the four Rand-based economies in the Southern African region including South Africa Namibia Lesotho and Eswatini

Anchor funders

Development Bank of Southern Africa (DBSA) and Green Climate Fund (GCF)

Initial Size $110M 2 Billion Rand

Capital structure

bull DBSA contributed $55M 15 yr loan and GCF contributed $55M 15 yr loan through DBSA as an accredited entity of the GCF

bull DBSA and GCF each contributed $06M grant for set-up costs

Fees No management fee charged by DBSA

Operations Launched in February 2019 lifespan of 20 years with ~5-year implementation period

Key design partners

Coalition for Green Capital (CGC) GreenCape ClimateWorks Foundation Convergence

Eligible projects

Infrastructure projects and businesses that mitigate or adapt to climate change including off-grid power mini-grid solar urban distributed solar farms energy and water efficiency

Countries South Africa Namibia Lesotho Eswatini

Investment size amp instruments

Size $5M to $10M Instruments Long-term subordinated debt credit enhancement including tenor extension (up to 15 yrs)

Target leverage

15 (one Rand from CFF mobilizes five Rand from private investorsbanks) recognizing that leverage ratios will vary considerably from project to project

Expected impact

Avoidance of ~30 million tonnes of CO2 equivalent during lifetime of program save ~23K jobs through water systems installation 400K+ indirect beneficiaries


GREEN BANK EXAMPLE 2

6 httpswwwctgreenbankcomabout-us


8 httpsgreenbankconsortiumorgannual-industry-report

Connecticut Green Bank

T he Connecticut Green Bank was established by the Connecticut General Assembly in July 2011 as the first Green Bank in the United

States The Connecticut Green Bank supports the Connecticut Governorrsquos and Legislaturersquos energy strategy to achieve cleaner less expensive and more reliable sources of energy while creating jobs and supporting local economic development The Connecticut Green Bank evolved from the Connecticut Clean Energy Fund which was given a broader mandate in 2011 to become the Connecticut Green Bank6 The Connecticut Green Bank is quasi-public and its board of directors is composed of both government officials and independent directors

The Connecticut Green Bankrsquos mission is to confront climate change and provide all of society a healthier and more prosperous future by increasing and ac-celerating the flow of private capital into markets that energize the green economy

The Connecticut Green Bank works with private- sector investors to create low-cost long-term sus-tainable financing to maximize the use of public funds Investment sectors for the Green Bank include green energy measures in the residential (single and multi-family) commercial industrial institutional and infra-structure sectors

Since its inception the Connecticut Green Bank and its private investment partners have deployed over $19 billion in capital for clean energy projects across the state Projects recorded through fiscal year 2019 show that for every $1 of public funds committed by

the Green Bank an additional $6 in private investment occurred in the economy7

In 2019 the Connecticut Green Bank used $36 million in public funds to catalyze over $427 million in total investment in the state A few highlights from 2019 include the issuance of a solar Asset Backed Security (ABS) which securitized the income from long-term purchase contracts with the utilities for Solar Home Renewable Energy Credits (SHRECs) for Renewable Portfolio Standard (RPS) compliance Connecticut Green Bank also established a new source of capital for Eversourcersquos Small Business Energy Advantage (SBEA) program where the Green Bank and Amalgamated Bank provided $55 million to extend zero interest loans to small businesses and lowered the cost of capital for the statersquos ratepayers8

Connecticut Green Bank also oversees the statersquos Commercial Property Assessed Clean Energy (C-PACE) program which as of 2019 has completed more than 300 projects state-wide



9 httpswwwcefccomauwho-we-areabout-us

10 Clean Energy Finance Corporation Act 2012 httpswwwlegislationgovauDetailsC2017C00265

11 PV Magazine (2012) ldquoCanadian Solar secures non-recourse finance for 47MW projects in Australiardquo httpswwwpv-magazinecom20170503canadian-solar-secures-non-recourse-finance-for-47-mw-projects-in-australia

Clean Energy Finance Corporation Australia

T he Clean Energy Finance Corporation (CEFC) is an Australian Government-owned Green Bank that was established in 2013 to

facilitate increased flows of finance into the clean energy sector

With an initial capitalization of ten billion Australian dollars the CEFC is responsible for investing in clean energy projects on behalf of the Australian Government The CEFC investment objective is to catalyze and leverage an increased flow of funds for the commercialization and deployment of renewable energy energy efficiency and low-emissions technolo-gies The CEFC invests to lead the market operating with commercial rigor to address some of Australiarsquos toughest emissions challenges ndash in agriculture energy generation and storage infrastructure property trans-port and waste9 The CEFC does not provide grants but rather lends at risk-adjusted terms at or as close as possible to commercial markets rates In addition to applying commercial rigor when making its invest-ments the CEFC is directed to target a benchmark rate of return on its portfolio The CEFC achieves its objectives through the prudent application of capital in adherence with its risk management framework its Investment Mandate and the investment policies issued by the CEFC Board

The CEFCrsquos portfolio includes projects across the Australian economy benefitting a diverse range of businesses large and small The CEFC also manages several sub-funds supporting innovative start-up com-panies through the Clean Energy Innovation Fund and

investing in the development of Australiarsquos hydrogen potential through the Advancing Hydrogen Fund

In 2019ndash20 every CEFC dollar invested was matched by more than $3 in investment from private sector capital Since inception every $1 of CEFC finance has been matched by more than $230 from the private sector

While the CEFC focuses on offering finance (eg debt and equity) this institution also works closely with an adjacent Australian government-sponsored grant provider the Australian Renewable Energy Agency (ARENA) In 2012 CEFC was created via legislation as part of broader legislative package that also created ARENA10 CEFC operates as a Green Bank providing finance to the local market while ARENA operates as a separate government-owned agency that deploys grants and other market assistance CEFC is governed by an independent board ndash completely separate from ARENArsquos governance board ndash but the two entities enjoy a close relationship as two flagship programs sup-porting clean energy in Australia ARENA and CEFC have collaborated on initiatives and have sometimes supported the same project when grants and financing were both required to get the project off the ground11 Importantly the separate balance sheets and identi-ties have allowed CEFC and ARENA to pursue their respective (and complementary) missions in a clear way with market actors understanding what kinds of support they can expect from each institution



Rwanda Green Investment Facility (Under development)

R wanda is highly vulnerable to climate change both in terms of mitigation and adaptation with serious consequences for agriculture

health and livelihoods To tackle this challenge Rwanda has set ambitious climate and development goals to achieve low-carbon emission while creating economic social impact and job creation Furthermore as Rwanda works to address the challenges created by the Covid-19 economic crisis strategies beyond near-term emergency aid relief will be needed to move toward long- re-growth of Rwandarsquos developing economy Leaders in Rwanda have identified the critical role of catalytic innovative finance to support infrastructure and social investment and sustainable growth

The Rwanda Green Investment Facility (RGIF) will utilize a Green Bank approach to catalyze green investment and NDC targets while supporting sustainable devel-opment goals The RGIF will utilize a blended finance approach by providing financial instruments (grants debt credit enhancements eg sub-debt guarantees) to projects that are commercially viable ndash but not yet bankable ndash in the green sector

The RGIF will serve the following objectives

xx Address local market gaps to facilitate flow of private investment through financial tools xx Strengthen Rwandarsquos ownership of climate finance

through a dedicated green finance facilityxx Build green finance capacity of local banks through

innovation risk mitigation deal arrangement

Specifically RGIF will be composed of two windows working in an integrated approach

1 A Credit Facility embedded within the Development Bank of Rwanda (BRD) offering direct loans as well as credit lines to the commercial banks and

2 A Project Preparation Facility at the Rwanda Green Fund (FONERWA) offering grants and reimbursable grants to increase the bankability of projects

The African Development Bank is working closely with the government of Rwanda to design and structure the RGIF and is serving as the GCF Accredited Entity part-ner to Rwanda in efforts to secure seed capitalization for the RGIF The UNDP and Nordic Development Fund have provided essential technical support for design and structing of the new climate finance facility

RGIF Partnership Structure (Proposed)

An integrated grant and finance approach to leverage and expand resources

Approve debt

financing

Approve grant

fundingBRD existing Investment Committee

FONERWA existing Investment Committee

RGIF Green Projects

RGID Steering CommitteeGuides the overall strategy of RGIF

Credit Facility at BRD

Project Preparation Facility at FONERWA

MampE (BRD amp FONERWA)

Screening Committee (BRD amp FONERWA)

Finance amp Repayment Proposals

Grants amp TAGrant Reimbursement

(where applcable)

RGIF (partnership between FONERWA amp BRD


5 | Introduction to National Climate Change Funds

INTRODUCTION TO NATIONAL CLIMATE CHANGE FUNDS | 27

A National Climate Change Fund (NCCF) also known as a National Climate Fund or a Green Fund is an institution that can help direct finance towards climate change projects and

programs that best fit a countryrsquos national context According to an UNDP guidebook on NCCFs these institutions have four key climate finance goals12

1 Collect and distribute funds to climate change activities that promote national priorities The value added of a NCCF is its ability to attract a variety of funding sources such as public private multilateral bilateral and other innovative sources

2 Facilitate the blending of its multiple sources of capital in a coordinated and streamlined way to further catalyze more resources to support action on climate change This allows for the coordination of national public and private sources of capital alongside the global climate finance system

3 Coordinate country-wide climate change activities The benefit of a NCCF is its connection to achieving national interests integrating climate change objectives into the local contexts alongside poverty reduction gender equality and sustainable development goals

4 Support other existing national institutions that drive development and climate change policies thanks to a NCCFrsquos dedicated focus and expertise on developing project proposals managing funding implementing projects and monitoring and reporting the results

12 httpswwwundporgcontentdamundplibraryEnvironment20and20EnergyClimate20ChangeCapacity20DevelopmentBlending_Climate_Finance_Through_National_Climate_Fundspdf

13 httpsunfcccintclimate-actionmomentum-for-changefinancing-for-climate-friendly-investmentrwanda-green-fund-fonerwa

14 httpwwwfonerwaorgabout



17 httpswwwresearchgatenetpublication264865181_The_Green_Fund_of_South_Africa_Origins_establishment_and_first_lessons


NCCFs are usually established under national-level juris-diction While many such institutions may not explicitly call themselves NCCFs they would fall under this category as long as they perform services that support the afore-mentioned climate finance goals Although NCCFs cannot solve the gap in climate finance alone they play a critical role in extending grants and concessional financing to better catalyze funding from the private sector especially in developing countries

NCCFs already exist on the ground in the African context Two prominent examples are the Rwanda Green Fund (FONERWA Rwanda) and the Green Fund of South Africa FONERWA Rwanda has capitalization from both domestic commitments and international donors such as the UKrsquos DFID (now known as FCDO) and UNDP1314 This fund has invested around $40 million in 35 projects in Rwanda through several different investment products including grants innovation investments and credit lines15 In order to crowd in private finance FONERWA requires private companies to match a certain percentage of the grants and loans received16 On the other hand the Green Fund of South Africa is managed by the Development Bank of Southern Africa (DBSA) with an initial allocation of ZAR 800 million over three years from South Africarsquos Ministry of Finance17 The Green Fund focuses on three different sectors namely the low carbon economy green cities and towns and environmental and natural resources manage-ment18 The Fund supports these sectors using a combi-nation of grants concessional loans and equity positions all of which meant to spur project development research


for the green economy and capacity-building19 These funds demonstrate that NCCFs already have a track record of operating in African countries and their lessons can be applied to other countries around the continent

Among the six African countries participating in this study several have institutions that serve as NCCFs as listed below While some are specifically dedicated to green initiatives others have a broader mandate that is folded under rural electrification goals

xx BENIN Fonds drsquoEacutelectrification Rurale (Rural Electrification Fund) under the jurisdiction of the Rural Electrification Agency (ABERME)

xx GHANA No dedicated green fund

xx MOZAMBIQUE Fundo National de Energia (FUNAE)

xx TUNISIA Fonds de Transition Eacutenergeacutetique (Energy Transition Fund ndash FTE)

xx UGANDA Uganda Energy Capitalization Credit Company (UECCC)

xx ZAMBIA Rural Electrification Fund under the jurisdiction of the Rural Electrification Authority (REA)

Grant funding through NCCFs is almost always a nec-essary complement to the work of Green Banks with regard to catalyzing further investment into climate change initiatives In many projects initial grant funding is required to lower upfront project costs and bring them to commer-cial bankability In addition both institutions can provide zero-to-low-cost financing for climate change projects as well as capacity building support However funding from a NCCF is not geared towards delivering financial return especially given their focus on using grant instruments to support green projects By contrast Green Banks utilize low-cost public capital to build a pipeline of investable projects that can then engage private financing In this way Green Banks can recycle capital as compared to Green Funds which typically require ongoing funding to continue operations It is possible however for NCCFs to evolve into Green Banks or to merge with a new catalytic finance facility to integrate grant funding into a pipeline of investable green projects



6 | Profiles of Green BankNCCF potential in six selected project countries

PROFILES OF GREEN BANK NCCF POTENTIAL IN SIX SELECTED PROJECT COUNTRIES | 30

ZAMBIA

20 httpsdataworldbankorgindicatorNYGDPMKTPKDZGlocations=ZM

21 httpsoecworldenvisualizetree_maphs92exportzmballshow2017

22 httpswwwreuterscomarticleus-zambia-electricityzambias-power-supply-deficit-worsens-as-water-levels-ink-idUSKBN1YG1DZ~text=220copper20producer20has20seenseason20caused20by20climate20change

23 httpswwwnordeatradecomenexplore-new-marketzambiaeconomical-contextvider_sticky=oui

24 httppubdocsworldbankorgen248071492188177315mpo-zmbpdf


26 Government data for 2019 has not been made publicly available yet at the time that this report was produced



29 httpswwwafdborgencountries-southern-africa-zambiazambia-economic-outlook

30 httpswwwcentralbanknewsinfo202005zambia-cuts-rate-as-country-faces-1sthtml

31 httpswwwcnbccom20201123zambia-becomes-africas-first-coronavirus-era-default-what-happens-nowhtml

I COUNTRY OVERVIEW

Zambia seeks to diversify its economic and industrial structure to meet its development goal of becoming a ldquoprosperous middle-income

nationrdquo as stated in its National Long-Term Vision 2030 (Vision 2030) However Zambia faces mounting challenges due to a difficult macroeconomic situation for 2021 and beyond as a result of lower global copper prices an ongoing drought severe debt distress and a weak currency

According to the World Bank Zambia grew at an aver-age rate of 35 per year between 2015 and 2018 This rate of growth declined to 17 in 2019 mainly driven by weak international copper demand20 As the COVID 19 pandemic suppresses global economic activity this nega-tive shock will further weaken Zambiarsquos copper mining and agriculture-based economy21 Zambia also suffered from a two-year drought that started in 2017 ndash most likely stem-ming from prolonged dry seasons and reduced rainfall during the wet season both linked to climate change22 Given that agriculture sector employs 56 of Zambiarsquos labor force the drought has far reaching implications for

the countryrsquos economy with additional challenges in terms of maintaining incomes and domestic consumption23 24

These difficult macroeconomic conditions are further com-plicated by Zambiarsquos high debt levels According to the World Bank Zambiarsquos fiscal deficit for 2019 was 109 of GDP yet the government is slated to continue running deficits past 202225 The level of anticipated spending further increases Zambiarsquos debt-to-GDP ratio which may is forecast to grow to 925 by 2022 26 27 Debt service consumed 46 of domestic revenues in 2019 an increase from the year prior as a result of the depreciating local currency (the Kwacha ZMW)28 The implication is that Zambia has reduced capacity to take on additional sover-eign debt in the near-term a key inhibitor for achieving the Vision 2030 development goals29 30 Zambiarsquos debt issues were further exacerbated by the effects of the COVID pandemic and depressed copper demand as the country defaulted on its foreign debt in late November 2020 after bondholders rejected its request for an interest payment delay31


Development Goals NDCs and Financial Context

Despite these economic challenges Zambia still aims to maintain a strong pace of development Zambiarsquos popu-lation stood at 1781 million in 2019 and is still growing (albeit at a slightly slower rate in recent years)32 Although only 44 of the population lives in urban areas this share is rising33 Increased urbanization may translate into greater need for electrification industrialization and urban services (eg transportation) To address these anticipat-ed needs Zambiarsquos Seventh National Development Plan outlines a path for the country to build a diversified and re-silient economy by 2021 Specific measures are highlight-ed such as reducing overdependence on the extractive sector increasing agricultural exports reducing poverty by increasing energy access and creating more jobs and reducing the risk of droughts affecting overall economic output34

For a sustainable future Zambia will need to balance its development goals with its climate goals As of 2017 Zambia over 90 of Zambiarsquos emissions came from land use land use change and forestry (LULUCF) due to the countries low electrification rates and high levels of sub-sistence farming35 Emissions from energy are expected to grow as Zambiarsquos economy diversifies and citizens gain increased access to electricity According to Zambiarsquos Nationally Determined Contribution (NDC) to the 2015 Paris Agreement Zambia pledged to reduce its carbon emissions by 25 and up to 47 (de-pendent on the level of international support and financ-ing received) from 2010 levels (using 2MT of CO2 as a baseline) by 203036 37 These climate goals and Zambiarsquos development plans may appear at odds especially if the countryrsquos pursuit of economic diversification leads to a reli-ance on fossil fuels for electricity (especially in rural areas) or increased deforestation for agriculture and urbanization Nevertheless efforts to develop distributed hydro and solar renewable energy capacity (particularly for off-grid solutions) climate-smart agriculture practices and green

32 httpsdataworldbankorgindicatorSPPOPTOTLlocations=ZM

33 httpsdataworldbankorgindicatorSPURBTOTLINZSlocations=ZM

34 httpswwwsdgphilanthropyorgsystemfiles2019-027th-National-Development-Plan-Zambiapdf

35 httpsourworldindataorgco2countryzambiacountry=~ZMB

36 httpswwwieaorgcountrieszambia

37 httpswww4unfcccintsitesndcstagingPublishedDocumentsZambia20FirstFINAL+ZAMBIA27S+INDC_1pdf

38 httpswwwpwccomzmenassetspdfzambia-banking-non-banking-industry-report2018-042019pdf



urbanization policies may help Zambia achieve green and sustainable growth

Zambia lacks capacity to finance the necessary solutions especially on the private sector side Although Zambia has made great strides in improving its business environ-ment Zambiarsquos banking system presents challenges for the private sector to access affordable credit The bank-ing system in Zambia faces pressure from a rising non- performing loan (NPL) ratio driven by slower GDP growth The average NPL ratio stood at 11 but this figure may deteriorate further as 41 of banks recorded an increase in NPLs in 201838 A greater number of outstanding loans amid slowing economic growth could result in more NPLs and stress the ability of Zambiarsquos banking sector to provide affordable credit especially for risker projects in off-grid energy climate-smart agriculture and green urbanization39

Attractive rates of return on government bonds have also diverted capital away from private sector projects that require financing Yields on government securities surged in 2017 and 2018 Rates for Treasury bills and govern-ment bonds rose from 1538 and 1856 respectively to 2130 and 2012 in 2018 alone40 These securities could compete with project financing if the economic slowdown reduces the banking sectorrsquos willingness to lend to the private sector Coupled with the relative illiquidity and small size of Zambiarsquos capital markets private sector solutions for green and sustainable growth face multiple hurdles in accessing affordable financing

The governmentrsquos ability to assuage the situation is also limited The Central Bankrsquos accommodative monetary poli-cy has been less effective than hoped Even during ldquogoodrdquo years when the overnight lending rates were lowered to 1625 and statutory reserve ratios were relaxed to 8 in 2018 private credit markets remained relatively shallow as NPLs were high at 124 (above the prudential threshold)


Hence banks retreated by locking up funds in risk-free government securities41

Aside from local banks and capital markets entities such as the Industrial Development Company (IDC) and the Development Bank of Zambia (DBZ) could serve as sourc-es of early-stage capital for renewable energy projects or companies with green assets Both entities are public finance institutions that provide affordable and patient financing to important projects with development impacts and have mandates to crowd-in public and private sector finance into key industries particularly electricity infra-structure The portfolio composition and target project sizes of the IDC is typically focused on larger scale infra-structure projects whereby the entity serves as a majority stake equity investor In comparison the DBZrsquos portfo-lio consists of deals worth $3 million and higher as its investment objectives are often driven by the mandates of development organizations that have partnered with DBZ and hence have their own specific investment guidelines

Although both of these entities provide support to the fledging ecosystem of green projects in Zambia there are still financing gaps particularly in the priority sectors that are discussed later in this report Furthermore even the aggregated financing provided by the IDC and DBZ will be insufficient to address all of Zambiarsquos funding require-ments for off-grid energy climate smart agriculture and green urbanization solutions in the context of its national development plans and objectives

Energy Context

According to the IEA biomass and waste represented 75 of Zambiarsquos primary energy supply in 2017 with oil providing 12 hydropower at 9 coal at 4 and non-hydro renewables at less than 142 The dominance of biomass reflects the fact that most of Zambiarsquos heating

41 httpswwwbozzmZambanker-June-2018pdf

42 httpswwwieaorgdata-and-statisticscountry=ZAMBIAampfuel=Energy20supplyampindicator=Total20primary20energy20supply20(TPES)20by20source

43 httpswwwusaidgovpowerafricazambia~text=ENERGY20SECTOR20OVERVIEWamptext=National20access20to20electricity20averagesfor20all20Zambians20by202030


45 httpswwwreuterscomarticleus-zambia-electricityzambias-power-supply-deficit-worsens-as-water-levels-sink-idUSKBN1YG1DZ~text=220copper20producer20has20seenseason20caused20by20climate20change


47 African Power magazine ndash Issue 404 21 November 2019

48 Virunga Power interview 5282020

49 httpswwwget-investeuwp-contentuploads201906GETinvest-Market-Insights_ZMB_Mini-grid_-Guide_2019pdf

50 httpswwwwartsilacomtwentyfour7energyzambia-in-new-light

cooking and lighting needs are met by direct burning of wood fuel and other sources of biomass as opposed to through the use of electric power or gas Only 31 of Zambiarsquos population was connected to the electric grid as of 201843 This deficit is especially prominent in rural areas where only 4 of Zambiarsquos rural population had access to electricity (compared to 67 of its urban population)44

The opportunity to address the energy sector in Zambia becomes even more pertinent when considering the countryrsquos development goals to enhance economic diver-sity and resilience Zambia has suffered from an electricity shortage for several years which continues unabated As hydropower represents 85 of Zambiarsquos electric genera-tion capacity Zambia today faces a power supply gap of 810MW of electric generation capacity given the ongoing droughtrsquos negative effect on water levels at its hydroelec-tric dams 45 46 This electricity shortage not only forces Zambia to import power from South Africa at premium prices but also hinders economic activity47 Both effects leave the country vulnerable to economic shocks

The country has the potential to address its power supply issues and achieve energy independence through the use of renewable energy Zambiarsquos northern region is well suited for mini-hydro due to the relative abundance of rainfall while strong solar irradiance in the southern regions makes solar a strong potential source of new generation capacity48 49 While Zambia has geothermal potential the sector faces many challenges including high development costs and long timeframes associated with exploitation activities Given this dynamic geothermal project development has not been included in the scope of this report Zambiarsquos total installed generation capacity is 2785MW The countryrsquos target for 2021 is to increase installed capacity to 3000MW and to have 3525MW of installed capacity by 203050 Zambiarsquos ambitious energy


targets highlight the potential for a broader green finance program to promote renewable energy particularly solar and mini-hydro in select regions

The country aims to achieve 90 urban electrification and 51 rural electrification by 2030 in order to aid poverty reduction efforts51 Zambia has also set a target of 15 non-hydro renewable energy penetration in its electricity mix by 2030 as part of its economic diversification and resilience campaign52 Other targets include reducing the share of wood fuel (firewood and charcoal) in the national energy mix to 40 by 2030 while increasing the share of electricity in cooking to 25 by 202153 54

The majority of the countryrsquos population reside in rural areas (approximately 55) but are unevenly distributed across the country Hence solar mini-grids mini-hydro and solar home systems (SHS) are the most suitable energy solutions to help bridge the electricity gap in these areas According to geospatial data from Power Africa Zambia must provide off-grid solutions to 66 of unelec-trified households in order to meet its energy access goals on a least-cost basis55

Multiple players in Zambia cooperate towards implemen-tation of these energy-related goals

xx The Ministry of Energy sets high level policy and strategy for the sector in coordination with other Ministries including the Ministry of Finance and the Ministry of National Development Planningxx ZESCO is the national vertically integrated utility and a

state-owned company that controls the vast majority of Zambiarsquos generation assets as well as all of the transmission and distribution infrastructure xx The Energy Regulation Board (ERB) is the main

regulator and oversees tariff setting and other matters xx The Rural Electrification Authority (REA) is an important

player with its mandate to support the provision of electricity infrastructure to rural areas REArsquos goal is to increase rural electricity access from 3 to 51

51 httpswwwres4africaorgwp-contentuploads201907Zambia-Position-Papers-1pdf

52 httpswwwseforallorgstories-of-successguest-blog-how-zambia-plans-to-deliver-new-electricity-to-millions~text=Vision20203020seeks20to20increaseto205120percent20by202030amptext=Government20and20industry20know20thisof20the20countryrsquos20electricity20mix

53 httpswwwmndpgovzmwpfb_dl=89

54 httpswwwsdgphilanthropyorgsystemfiles2019-02Final207NDP20Implementation20Plan20-20920April_2018pdf

55 httpsmediumcomPowerAfricathe-powerful-impact-of-geospatial-data-in-planning-zambias-power-sector-a89be0807bbe

56 REMP 2009

57 REMP 2009

58 httpsinfoundporgdocspdcDocumentsCHNProDoc20-2091277pdf

59 THE ELECTRICITY BILL 2019 httpwwwparliamentgovzmsitesdefaultfilesdocumentsbillsThe20Electricity20Bill2020192C20NAB2016pdf

by 2030 through the utilization of locally appropriate rural electrification technological options One of REArsquos key roles is developing and implementing the Rural Electrification Master Plan (REMP) The latest REMP was released in 2009 outlining an estimated investment need of 44 trillion Zambian Kwacha (c $11 billion) over the 2008 to 2030 period

REA performs its role through three channels The REA works to mobilize donor and development partner funds to support rural electrification It also encourages private sector participation in rural electrification through provision of subsidies where possible Finally the REA supports competitive bidding community mobilization and financ-ing project preparation studies for rural electrification Outside of donor money the REA finances its efforts through Zambiarsquos Rural Electrification Fund (REF) which was first launched in 1994 but has struggled to achieve its rural electrification goals REA took over the REF to improve its management in 200456 According to the latest REMP from 2009 the REF budget was approximately 113 billion Kwacha (c $630000)57 The REFrsquos budget is primarily derived from a 3 levy on ZESCO retail custom-er bills along with funding from development partners58

In terms of legislation two new laws were enacted as part of the governmentrsquos recent responses to challenges in the electricity sector ndash the Electricity Act No 11 of 2019 (Electricity Act) and the Energy Regulation Act No 12 of 2019 (Energy Regulation Act) These acts were enact-ed into law in December 2019 and came into effect in February 2020 The Electricity Act is designed to liberalize the electricity market and allow more IPPs to participate including via ldquowheelingrdquo across the grid This Act also gives more authority to ERB in terms of overseeing IPPs and wheeling including oversight to ensure ldquoa regular efficient coordinated and economical supply of electric-ity and facilitate universal access to electricity supplyrdquo59 While the Electricity Act is still in its early stages it has the potential to enable more IPPs to enter the market


Zambia is also engaging in a wide array of development partner-led programs to support clean energy installation including some focused on mobilizing the private sec-tor One such program is the Beyond the Grid Fund for Zambia (BGFZ) which is an initiative of the Government of Sweden in collaboration with the US Power Africa initiative REEEP and local partners The BGFZ primar-ily targets addressing framework conditions of off-grid energy markets lowering barriers to entry at scale for the private sector catalyzing investment and economic activity and maximizing development and climate impacts per unit of public financing spent60 The BGFZ aims to bring modern energy services to at least 167000 house-holds ndash translating to one million Zambians ndash by 2021 At the core of the BGFZ is a 20 million EUR results-based ldquosocial impact procurementrdquo fund This fund deploys grant financing to eligible projects but functions like traditional public procurement processes ndash with strict guidelines on eligibility submission of tenders from potential awardees and specific deployment and delivery schedules The fund mainly focuses on bringing prices down on solar home systems (but not mini-grids)

Initiatives focused on on-grid electricity include the REFiT plan and its accompanying GET-FiT Zambia program as well as Scaling Solar Zambia and AfricaGreenCo All of these programs are meant to support an increase in electricity generation or access for Zambia in order to spur economic development However institutional and market barriers have limited realization of the full potential of these programs In particular the noted financial challenges at ZESCO and the Zambian government have presented barriers to scaling up private solutions to achieve Zambiarsquos energy and development goals

The REFiT plan serves as Zambiarsquos primary private sector renewable energy deployment plan for on-grid genera-tion61 This plan sets a goal of installing 100MW of solar and 100MW of mini-hydro power through projects with a maximum capacity of 20MW each The REFiT plan employs reverse auctions for project procurement and

60 httpswwwreeeporgbgfz

61 httpswebcachegoogleusercontentcomsearchq=cachewdXHu68vk1gJhttpswwwmoegovzmdownloadstrategic_plansThe-Renewable-Energy-Feed-in-Tariff-REFiT-Strategy-2017pdf+ampcd=5amphl=enampct=clnkampgl=us

62 httpswwwgetfit-zambiaorgabout-get-fit

63 ZESCO CORPORATE WEBSITE ndash httpswwwzescocozmourBusinessfinancialStatement

64 httpscuts-lusakaorgpdfpolicy-brief-targeting-residential-electricity-subsidies-in-zambiapdf

65 ZESCO interview 6102020


67 Zanaco interview 642020

arranges power purchase agreements (PPAs) with ZESCO as the off-taker REFiT is implemented by the GET-FiT pro-gram62 Funded by the German development bank KfW GET-FiT provides financial and technical assistance to private renewable energy developers in particular manag-ing the reverse auctions extending partial credit guaran-tees in collaboration with the African Trade Insurance (ATI) to protect against contract termination risks and liquidity risks and offering viability gap funding that boosts tariff prices to more attractive levels Thanks to these credit guarantees that boosted confidence in the market the GET-FiT program has already installed 120MW of solar capacity across Zambia as of 2019 and is working on the mini-hydro portion of the program

However one of the biggest challenges faced by REFiT is the distressed financial situation of ZESCO In 2018 ZESCO reported losses of 28 billion Kwacha (c $263 million) which further increased ZESCOrsquos reliance on government subsidies and debt issuance63 Due to years of selling electricity at subsidized prices ZESCO lacks a strong financial foundation to be a reliable off-taker Although Zambia has increased electricity prices by 75 in 2018 followed by a 200 increase for residential users and 49 for commercial users in 2019 ZESCO still faces a steep climb towards improving its financial position in order to sign PPAs at higher costs as required by some IPPs64 Conversely the higher tariffs required to strength-en ZESCO financial position are unaffordable to much of Zambiarsquos population65 Even though the new Electricity Act allows for private producers to sell their power directly to consumers while only using ZESCOrsquos grid as a ldquowheelingrdquo tool the tariffs charged by IPPs can still be consider-ably higher than what ZESCO charges66 Coupled with the increasing price of renewable energy imports due to depreciation of the Kwacha investing in grid-connected renewable energy projects still faces significant challenges in recouping costs even with the credit support mecha-nisms provided by the GET-FiT program67


Given the current financial difficulties associated with relying on ZESCO as an off-taker mini-grids and off-grid capacity emerges as potential solutions to help meet Zambiarsquos economic development and energy access goals By providing power to rural villages for both res-idential and commercial uses (eg agri-processing and treatment plants in rural communities) off-grid renewable energy solutions can facilitate the growth of local busi-nesses including cash-crop industries supported by IDC Zambia such as palm oil eucalyptus and cashews68 For example an off-grid mini-hydro project in Zambiarsquos northern region at Zangamina has helped power small businesses schools and hospitals in the rural community resulting in notable local economic growth69

Off-grid renewable energy can also help with the transition away from biomass and diesel in the countryrsquos energy mix as well as increase farm productivity This allows for more time for education by reducing the need to collect biomass and by providing power for lighting and electric appliance charging70 Finally siting more mini-hydro at run-of-the-river sites in Zambiarsquos northern regions may lower the effects of decreased rainfall as these regions are generally less prone to drought Coupled with solar solutions off-grid projects can help build Zambiarsquos climate resilience against lower water levels at its large hydroelec-tric dams Although the country is already engaging with mini-gridoff-grid support facilities that supply grants such as the Beyond the Grid Fund for Zambia and the Off-Grid Energy Access Fund additional support is needed to scale-up private sector investment in support of Zambiarsquos economic development goals

Climate Smart Agriculture and Forestry Context

The climate-smart agriculture (CSA) and forestry sectors present opportunities to advance Zambiarsquos economic growth and diversification Zambiarsquos major agricultural products include cattle cassava vegetables soybeans sugarcane tobacco cotton and maize with the latter

68 Zambia IDC interview 652020


70 httpsieeexploreieeeorgdocument8095664

71 httpsappsfasusdagovnewgainapiapireportdownloadreportbyfilenamefilename=Agricultural20Economic20Fact20Sheet_Pretoria_Zambia_10-5-2015pdf

72 httpwwwfaoorg3a-i4157epdf




76 httpsinfoundporgdocspdcDocumentsZMBZambia20REDD+20Strategy2028FINAL20ed292028229pdf


78 httpsopenknowledgeworldbankorghandle1098631383

four representing the major export crops71 Most of these food crops eg cassava millet sorghum and maize are grown by 600000 smallholder farmers while 2500 large-scale farms and plantations mostly focus on cash crops eg cotton sugarcane and tobacco72 Although these large-scale farms cultivate 22 of all cropped land the prevalence of smallholder farmers means that most of Zambiarsquos agricultural sector revolves around subsistence farming

With less than 30 of arable land currently irrigated a significant amount of Zambiarsquos crops are reliant on rainfall and are vulnerable to drought especially maize73 As a result Zambiarsquos Seventh National Development Plan em-phasizes the importance of developing a more diversified and drought-resilient export-oriented agriculture sector74 Given the significant role of smallholder farmers in Zambia crop diversification and efficient irrigation would not only help improve climate resilience but also help improve economic returns especially for the poorest farmers75 On the forestry front the rate of deforestation in Zambia stands at 250000ndash300000 hectaresyear primarily driven by the production of charcoal for energy consumption and for commercial farming76

Zambiarsquos Seventh National Development Plan lists multiple targets for climate-smart agriculture and forestry including 90 of farmers planting drought-resistant crops at least 20 of farmers employing irrigation practices and putting three million ha of land under forest management plans77 The primary policymakers in these sectors are the Ministry of Agriculture and the Forestry Department in the Ministry of Lands and Natural Resources with support from the Ministry of National Development Planning Although the Ministry of Agriculture is working on a forthcoming Climate-Smart Agriculture Strategy Framework that aims to increase productivity enhance resilience and reduceremove carbon emissions Zambia still lacks clear policies that could help achieve its CSA goals78 Zambiarsquos small-holder farmers are the least likely to diversify their crops


due to their inability to overcome information and market entry barriers especially if they are unable to see imme-diate economic benefits from diverting scarce land away from subsistence farming79 Although building climate resilience through crop diversification and efficient irriga-tion contributes to Zambiarsquos development goals many of its smallholder farmers lack the tools and support to take new risks or pursue new ventures

Similar issues affect forest management Although Zambiarsquos Forest Policy 2014 and the Forest Act 2015 en-courage more sustainable forest management by engag-ing local communities and regulating forest land conver-sion weak governance plus low enforcement capacities in the forestry sector hinder efforts to reduce the current rate of deforestation80 81

While the government of Zambia has continued to allocate funding as liberally as possible to support the agricultur-al sector some areas have received less than adequate attention and financial support such as the broader pro-motion of CSA (beyond just conservation agriculture and agroforestry) The challenge going forward for the govern-ment will be to determine how they maximize the positive impacts of their funding One area under review is ongoing support to programs like Zambiarsquos Farmer Input Support Program (FISP) and the Food Reserve Agency (FRA) These government-backed programs extended subsidies for fertilizers and maize price stabilization respectively Yet mounting evidence suggests that these programs have not achieved their agricultural diversification and produc-tivity goals82 Thus a study by the Indaba Agricultural Policy Research Institute recommends that these two pro-grams be scaled back and the funding redirected towards social cash transfers and expanded programs that provide direct food support to women and children83

Overall Zambia does not yet have sufficiently robust financing mechanisms to support the implementation of either CSA initiatives or better forest management


80 httpdocuments1worldbankorgcurateden571651580133910005pdfZambia-Country-Forest-Note-Towards-a-Sustainable-Way-of-Managing-Forestpdf


82 httpwwwrenapriorgwp-contentuploads201703Smart_subsidies_IAPRI_PolicyAdvisory_Mar2017pdf


84 httpswwwtheigcorgblogurbanising-zambia-tackling-bad-contagion~text=The20rapid20pace20of20urbanisationof20almost2052520since202000

85 httpwwwairqualityandmobilityorgSTRZambia_NMTStrategyfinalpdf




89 httpswwwlusakatimescom20181016electric-cars-to-be-launched-in-zambia-by-december

especially in comparison to the wide array of resources available for its clean energy and off-grid electrification efforts

Green Urbanization and Clean Transportation Context

Although Zambia is undergoing a process of urbanization as its economy develops the main policymaking entities in this sector ndash the Ministry of Local Government and Housing and the Ministry of Transport and Communication ndash do not have robust policy programs for green urbaniza-tion or clean transportation Current urbanization trends forecast 58 of Zambiarsquos total population residing in urban areas by 205084 But even at current urbanization levels car ownership rates are rising to the point where Zambian cities are experiencing congestion and lower air quality85 A UNEP report highlights that ineffective ur-ban planning and weak legal and policy framework have resulted in under-investment in urban infrastructure result-ing in inadequate access to housing and efficient trans-port services among others86

Although Zambiarsquos Seventh National Development Plan identifies the need for low-carbon efficient mass transit systems the plan does not identify any concrete funds or tangible policy support devoted to this goal87 The primary urbanization and clean transportation strategy consists of a Non-Motorized Transport Strategy that revolves around making Zambian cities safer and more attractive for pedestrians and cyclists as well as reducing the need for personal vehicular transport88 Although private sector activities in clean transport are limited one Zambian firm ndash Amilak Investments ndash imports electric vehicles (albeit only a limited numberso far) and aims to establish Zambia as a light-duty EV manufacturing hub for Africa89 While there is not much momentum for private investment in green urbanization or clean transport at the moment this situa-tion may change as the country continues to develop and urbanize and as additional regulatory or policy support


is dedicated toward the sector As Zambia only has ten years left to achieve its Vision 2030 development goals strategies for green urbanization and clean transportation are crucial as more Zambians move into cities and as the economy diversifies

II PRIORITY SECTORS

Based on the factors described above two key sec-tors in Zambia have been identified as prime targets for green finance solutions (i) Energy and (ii) Climate Smart Agriculture The selection of these sectors was based on the set of analytical criteria applied to each of the six countries considered in this report

xx Sectors with significant potential to reduce CO2 emissions and have the potential to support the continued efforts of the countryrsquos progress towards meeting NDCs and SDG commitmentsxx Sectors where project pipeline seems to have

potential contingent on further market analysisxx Sectors that are a significant direct or indirect

contributor to the countryrsquos Gross Domestic Product (GDP) andxx Sectors where a financing gap exists within the

market that could be served by catalytic green capital to make progress towards the countryrsquos NDCs and development goals

As noted earlier the energy and agriculture sectors are key strategic areas identified by the Government of Zambia which can propel economic growth Both are connected either directly or indirectly to improved liveli-hoods and to the countryrsquos NDCs From a climate change perspective these two sectors also happen to be the largest contributors to Zambiarsquos greenhouse gas emis-sions and hence present a meaningful opportunity for climate finance A green finance facility or NCCF with a clear mandate to accelerate Zambiarsquos transition to a green economy has the opportunity to provide technical assis-tance capacity building access to affordable financing solutions and de-risking mechanisms ndash all of which ad-dress key constraints for these critical sectors

90 On-grid projects greater than 50MW

91 ldquoMean annual rainfall over Zambia has decreased by an average rate of 19mm per month (23) per decade since 1960rdquo mainly driven by a 35 decline in rainfall during the countryrsquos annual wet season

Energy as a Priority Sector

Although the overall electricity shortage problem is signif-icant the notable amounts of existing financing from IFIs ODA and even Zambiarsquos own IDC that already targets large-scale or utility-scale projects make rural electrifica-tion the most important energy sub-sector to focus on90

Rural electrification in Zambia remains significantly under-funded Given the financial state of ZESCO it is unlikely that the situation will change unless there is external intervention REA continues to face challenges in access-ing funding to implement the REMP which envisions both the extension of the grid and off-grid systems as solutions for rural areas With REMPrsquos estimated financing require-ment of 44 trillion Kwacha (c $11 billion) or $50 million annually between 2008ndash2030 the REA requires contin-ual support from a diverse group of partners to mobilize resources and investments in Zambia This situation is exacerbated by the fact that rural areas are sparsely populated therefore are less likely to be prioritized for any near-term grid expansion plans as these areas are less commercially appealing for utilities

The off-grid energy sub-sector in Zambia is primed for decentralized solar mini-grids and mini-hydro power projects As the country has already experienced severe multi-year droughts that are reflective of an observed longer-term decrease in rainfall patterns Zambia should focus efforts in the immediate term on diversifying its energy mix to reduce reliance on large-scale hydro power alone91

Examples of productive use cases have become more prevalent highlighted by projects financed or supported by REA and the IDC in recent years When productive use is integrated into new power system designs there is an opportunity for energy projects to add value beyond electrification Some ongoing initiatives are highlighted in later sections of this report and hold promise for future direction


Source CSA Zambia Profile Projected change in Temperature and Precipitation in Zambia by 2050

Complications amp Opportunities in the Energy Sector

Several factors have constrained the sectorrsquos growth including

xx Institutional weaknesses xx Sovereign fiscal constraints and economic

dependencies and xx Poorly structured regulatory frameworks

xInstitutional Weakness ndash ZESCOrsquos weak financial position contributes to the countryrsquos inability to maintain existing transmission and distribution networks (also causing capacity lags)92 It has caused severe headwinds for network upgrades and grid expansion and has reduced private sector interest given ZESCOrsquos role as the main counterparty power off-taker in the country

The Government of Zambia has initiated two specific changes to support a more suitable business environment for IPPs although this remains a work in progress The first was the passage of the Electricity Act of 2019 which allowed for IPPs to enter the electricity market through PPAs with non-state off-takers The second was the governmentrsquos implementation of new tariff rates for electricity

92 httpswwwusaidgovpowerafricazambia

While these rate adjustments will not result in an immediate rebalancing of the historical financial issues for the power utility they illustrate the governmentrsquos willingness to utilize different levers to open up the electricity market and enact market stabilizing policies Tariff increases could have implications for affordability of electricity access and support to any government agency should take this into consideration

xSovereign Fiscal Constraints and Economic Dependencies ndash The state of the countryrsquos main electricity utility is to some extent a reflection of deeper financial resource constraints at the national level The high debt to GDP levels in Zambia is an indicator and determinant of the countryrsquos ability to borrow to fund new infrastructure Without debt restructuring which the government is currently pursuing Zambia will continue to face constraints that have deep economic effects Debt issuance constraints may also have an impact on the structure of any potential new Green Bank or national climate change fund as it is typical that host governments are a capital contributor to any such initiative In Zambiarsquos case the likelihood of sovereign financial contribution appears to be weak

In addition to high external debt levels the countryrsquos significant reliance on extractive activities as the predominant means for securing foreign exchange has resulted in two main issues First the Zambian economy is exposed to the volatility of the global commodity markets and the price of copper Secondly this vulnerability exacerbates the countryrsquos macroeconomic situation and negatively effects the value of the Kwacha This depreciation results in rising sovereign debt levels as hard currency denominated debt becomes more expensive straining the governmentrsquos ability to service debt obligations It also increases the cost of imported goods including materials and equipment needed for critical infrastructure The brunt of these effects is felt by the government (through their procurement mechanisms) private developers and their project returns and by the electricity end-user as these costs are passed down the value chain

Since almost all renewable energy projects will be priced in USD the volatility of the Kwacha relative to any hard currency has important consequences for the design of a green finance facility The decline in

Changes In Total Precipitation ()


the global market price for copper (57) over the last decade from highs of $457 per pound (in January 2011) to lows of $194 per pound (in January 2016) illustrates the countryrsquos vulnerability to accessing foreign exchange along with the importance of access to secure funding denominated in local currency for any new sovereign debt93 An alternative to this could be a low-cost loan in hard currency with a market-rate hedge in place which could potentially reduce the cost of funds If currency hedge costs are supported by a development-focused guarantee program as part of the green bank or green facilityrsquos funding design this has the potential to bring costs down even further Short of a guarantee product being made available by climate fund partners or by other development partners highly concessional financing may be sufficient enough to change the project economics for financing partners in-country

xPoorly Structured Regulatory Frameworks ndash The lack of clear regulatory frameworks and policies for the off-grid energy sector has created uncertainty for private sector developers One existing initiative that could be leveraged in this regard is the implementation work being carried out by the Renewable Energy and Energy Efficiency Partnership (REEEP) through the Beyond the Grid Fund for Africa (BGFA) program It is recommended that any green financing program seek to integrate learnings from this program to contribute to additional efforts of establishing an enabling environment for off-grid solutions The BGFA program intends to share any resulting information from the program through the Platforms for Market Change which will be used to inform investment decisions and policymaking94

xOff-Grid Sub-sector Focus ndash The off-grid energy sub-sector should be the primary focus of a new green financing initiative given the size of the gap between the current state of rural electrification and the governmentrsquos development objectives But with the complexity of the constraints outlined there is suggestive evidence that direct financial support and technical assistance to the broader sector which includes support of on-grid renewable energy projects will be beneficial

93 httpstradingeconomicscomcommoditycopper


Technical support to commercial banks is an example of an intervention that could target rural electrification renewable energy projects as well as have wider benefits for the energy sector Interviews with stakeholders have indicated that local financial institutions need technical support to fully develop green lending capacity The technical support required varies from enhancing credit policies and underwriting standards to capacity building to enable banks in Zambia to integrate environmental risks (including the effects of climate change) into their transaction assessments Although training and capacity building may initially be targeted to accelerate development of decentralized mini-grids the experience gained can be applied to other renewable energy projects and have an amplified effect for the sector

Beyond a primary focus on off-grid energy there is also the risk that even currently on-grid connected communities might experience future electricity shortages This is driven by ZESCOrsquos lack of financial capacity to maintain the grid infrastructure Hence in addition to off-grid solutions for new generation capacity some portion of any new financing should be directed to improve the electricity infrastructure namely upgrading the grid to reduce transmission losses (recorded at 17 as of 2017) and to facilitate the connection of new renewable energy projects that are developed in the future

Potential Interventions for the Energy Sector

Green financing initiatives will have the greatest impact if used to address project preparation capacity building reduction of project financing costs and risk mitigation for the variety of system risks experienced by commercial lenders or private developers

xProject Preparation ndash Some of the aforementioned complications in green investment could be addressed through the establishment of a project preparation facility (PPF) Such a facility should be used to support commercial banks as well as private sector developers Any project preparation facility should include grant support to advance renewable energy projects from the feasibility phase to a point where the projects are considered commercially bankable This also means that any PPF should have an intentional role as a


coordinating facilitator between commercial banks concessionary financiers and project developers whereby transparency on requirements for financing are clear and are agreed in advance to the greatest extent possible A dedicated tranche of funding for feasibility studies is strongly needed in the market no other program currently provides this type of financial support

xCapacity Building ndash Whether integrated within the

activities of a PPF or not there is a wide market gap in technical knowledge and capacity within the existing commercial banksrsquo organizational structures for the underwriting of renewable project financing transactions Training has been highlighted by stakeholders as a critical aspect to enhance and bolster the renewable energy sector growth Without training there it is possible that even if new financing was put in place uptake from private sector financiers would still be low and hence could stifle any progress

xRisk Reduction ndash Project financing requires long tenor loans (preferably greater than seven years) than what many local commercial banks are currently willing to offer This is driven by some of the reasons highlighted earlier in the report but is also affected by the current macroeconomic state of Zambia where banks struggle with high cost of funding (Overnight Lending Facility (OLF) rates were at 28 as of March 2020)95 With this market dynamic concessional capital is considered a requirement in order to stimulate the economy and the private credit markets The high OLF rate coupled with the fact that government treasuries are paying 2825 for 364-day treasury bills and 33 for 10-year government bonds further disincentivizes banks to extend credit to the private markets96 Accounting standard changes in 2018 required financial institutions to transition to IASB 9 for recognition of expected credit losses This policy change has also deterred banks from lending especially in the current high non-performing loan environment prevalent across the banking sector

A significant reduction in cost of funds and a guarantee program to backstop any renewable energy project risks are highly recommended Without these interventions it is unlikely that banks will shift funds from the higher yielding government securities to the

95 httpswwwbozzmZambanker-March-2020pdf

96 httpwwwworldgovernmentbondscomcountryzambia

private sector Access to credit and financial inclusion have been long-standing problems in the country and are not tied to any one sector Any guarantee program or risk mitigationcredit support will serve a dual function (i) it could minimize collateral requirements of financial institutions and (ii) if structured correctly it could reduce any loan loss provisioning for the banks that will book the loan on balance sheet Most banks in Zambia require a minimum of 100 collateralization of any loan value The DBZ requires 125 collateral cover for any loan underwritten The existing lending terms make it challenging for small or local developers to access the capital that is needed to develop renewable energy projects Furthermore in circumstances where equity partners may be sought as opposed to debt financing these same smaller developers continue to struggle

An example of one type of guarantee needed is for off-grid solutions such as SHS distributors or mini-grid developers whereby the purchasers of the power are individual households The guarantee should be designed to mitigate end-user credit risk The greater promotion and integration of pre-paid meters could be a potential substitute or complement to these credit guarantees as these meters would provide banks a level of assurance on project cash flows

Taking into account the above needs for credit support and technical support in the energy sector a Green Bank or a catalytic green finance facility could be a valuable and timely strategy for Zambia to effectively address local market challenges in the renewable energy sector (with a focus on the off-grid sector especially the financing constraints and complexities highlighted around proj-ect preparation capacity building reduction of project financing costs and risk mitigation for the variety of risks experienced by commercial lenders or private developers

Potential Green Bank Host Institutions

Given the various fiscal constraints Zambia faces re-garding launch of a new Green Bank or national climate change fund it is recommended that any new initiative be integrated into an existing government institution or initiative Ideally the partnering institution should have an existing mandate for infrastructure lending or proj-ect finance that is consistent with a focus on green and


climate-related investment The government of Zambia and the Ministry of National Development Planning have already begun engaging in g a process to scope the po-tential for a potential Green Bank or NCCF

From an initial scoping of the current financial institution landscape in Zambia the candidates that emerge as potential partner institutions for a green finance facility are the Development Bank of Zambia andor the Industrial Development Corporation (Zambia) Relative to the na-tional market these institutions have the most experience in finance and in relevant green sectors Specific capacity building training programs and a mission-driven mandate for the new unit focused on building green and climate- related investment capacity will be an essential element of creating an effective Green Bank or national climate change fund initiative

xDevelopment Bank of Zambia ndash The DBZrsquos shareholder structure appears to be somewhat more aligned with international capitalization given that its shareholder base includes foreign bilateral and multilateral institutions Furthermore the organization has worked with large scale programs such as the renewable project that was financed in collaboration with UNIDO and the Rural Electrification Authority In the pipeline DBZ is working closely with the World Bank through their Electricity Service Access Project (ESAP) to map the potential for small solar home systems and mini-grids The amount of any future credit line to be provided by the World Bank to fund such a pipeline is currently undetermined but figures range from $25 million as a pilot with the potential to ramp up to $265 million Of this total funding figure $59 million is intended to specifically target rural electrification projects whereby $34 million will be used for technical assistance and the remaining $25 million will fund direct loans to solar equipment companies and mini-grid developers This component of the program is known as the Off-Grid Loan Facility It is recommended that collaboration be sought with the World Bank or DBZ in preliminary Green Bank design stages to leverage any progress and results that may transpire from the Off-Grid Loan Facility especially if a Green Bank could be complementary to this program

One of the other favorable aspects of DBZ as a potential partner institution is that they are in the process of securing accreditation with the Green

Climate Fund Achieving accreditation would facilitate funding from the GCF and other potential climate funds to rural renewable energy projects in the country

xIndustrial Development Corporation ndash The Industrial

Development Corporation (Zambia) is a strong potential partner for any grid-connected renewable energy projects The institution has an existing mandate that includes renewable energy and is focused on projects larger than 50MW This mandate forms a unique complement to the DBZ target market segment The greatest challenge cited by the IDC is identifying equity capital providers in project finance transactions for grid-connected projects the IDC has continued to play an active role as an equity investor but seeks financing partners who have appetite for minority equity stakes

Similar to the DBZ the IDC has experience collaborating with multilateral development organizations such as their support of an 88MW new solar power plant generation capacity project in 2017 through the World Bankrsquos Scaling Solar Program Following the end of the Scaling Solar Program the IDC successfully launched the Alternative Renewable Energy Investment Program (AREIP) which to date has supported 400MW of new solar power generation capacity and a 130MW new wind turbine farm The IDC has also taken action that leverages the Electricity Act of 2019 and curbs the historic ZESCO monopoly as the sole power off-taker in Zambia via an initiative with Africa GreenCo

NCCF amp Grant Funding

A national climate change fund typically focuses on pro-viding grant funding towards technical assistance andor deployment of grant funding to reduce costs for qualifying projects Given the nature of market challenges identified through this report and the need for grant funding to com-plement project finance strategies a NCCF is an import-ant strategy to consider in Zambia

The Rural Electrification Authority (REA) is a strong poten-tial partner for a NCCF given the organizationrsquos history of project facilitation and implementation in the rural electri-fication sub-sector As mentioned earlier REArsquos funding is generated from a mix of sources but is generally reliant on grant funding to conduct its work With this dependency it is not surprising to see slower than hoped progress in rural electrification However the agency has critical


experience already which includes relationships that have been cultivated with leaders in rural areas since the REFrsquos establishment in 1994 For this reason it is recommended that further discussions be pursued with the REA to ex-plore potential integration of a NCCF within their institu-tion Furthermore the REA has recently added to its track record of renewable energy project development with the successful completion of a mini-hydro power station in 2019 Known as the Kasanjiku project the mini-hydro power station is located in the North West Province of Zambia and is the first to be constructed in Mwinilunga An estimated 12000 people will benefit including local public service providers97 This recent project highlights existing experience with mini-hydro power which is crucial for the development of future projects

Given REArsquos in house capacity and experience with project assessment and development the entity was identified as a partner for the World Bankrsquos Electricity Service Access Project (ESAP ndash for which DBP is serving as the financial intermediary) REA is involved specifically in the Off-Grid Smart Subsidy Program (OGSSP) component There is opportunity for a NCCF within the existing scope of the program to provide further complementary support and to scale positive results Five sites for projects have been se-lected thus far with both hydro and solar projects already identified However wind projects have not commenced feasibility studies as they will require additional funding but could be an interesting first area to explore

In concert with a NCCF enhanced project preparation capacity for Zambiarsquos renewable energy market is seen as a critical need Although REA DBZ and IDC have some internal project preparation capacity there is a shortage of funding for the development of rural electrification projects Potential existing approaches to filling this need include the model highlighted by the Ministry of Energy for a Project Preparation Grant (PPG) which is one compo-nent of a program presented to SREP with co-financing from the Climate Investment Funds and AfDB98 In inter-views stakeholders have noted that given REArsquos funding model additional grant funding that targets feasibility and project preparation activities is very much needed espe-cially if the funding is inclusive of training for staff and local counterparties

97 httpsconstructionreviewonlinecom201910construction-of-us-8-6m-mini-hydro-power-station-in-zambia-completed

98 httpswwwclimateinvestmentfundsorgsitescif_encfilessrep_invetment_plan_for_zambiapdf

99 httpscleantechnicacom20190812how-solar-power-finds-new-uses-in-rural-africa-the-solar-hammer-mill

100 httpwwwfaoorgclimate-smart-agricultureen

Integration of productive use energy to support commu-nity livelihoods is a model that REA has already started to explore REArsquos integration of solar technology into the construction of 2000 hammer mills in 2015 is a good example of this model99 The hammer mills are used to produce maize flour and consume approximately half of the electricity generated the remainder of the solar power generated is distributed to the community With a simi-lar concept mini-grids could be designed alongside the development of enterprises in a variety of sectors which would have co-benefits of employment whilst also poten-tially reducing the electricity costs for local communities More recently as part of the REMPrsquos implementation REA continues to work towards the development of Rural Growth Centers (RGCs) REA has identified over 1500 solar milling plant projects to be developed that integrate a 15kW solar powered generator serving predominantly the electricity needs for milling activities but whereby excess power is distributed to the community

Climate Smart Agriculture (CSA) as a Priority Sector

Climate Smart Agriculture aims to address three main goals all of which answer to the green finance criteria as noted above These include (i) to ldquosustainably increase agricultural productivity and incomesrdquo (ii) to ldquoadapt and build resilience to climate changerdquo and (iii) to ldquoreduce andor remove greenhouse gas emissionsrdquo100 With the gov-ernmentrsquos focus on the agricultural sector as an economic driver to support employment and ensure food security for the population of 18 million there is an opportunity for a green finance facility to help promote the growth of the sector through an emphasis on CSA practices

The Seventh National Development Plan and the National Agricultural Investment Plan (NAIP) highlight several important goals for the CSA sector including expanding the hectarage of irrigated farmland improving productivity through enhancing technology development ensuring efficient water use and expanding water-smart irrigation

The Seventh National Development Plan promotes a diversified and export-oriented agriculture sector with several programs that focus on improving productivity


through enhancing technology development The program outputs include identifying appropriate CSA technologies and practices to be developed and disseminated as captured in the following government plan (2016 baseline) in Table 3ndash2

Water resource management is one of the components of the NAIP (2014ndash2018) focused on ensuring efficient water use and irrigation The core focus and intended targets are to increase irrigated hectarage from 170000 to 188000 and to increase the percentage of farmers with access to irrigation for high value crops from 10 to 20 The mechanisms through which the targets will be delivered include ldquostrengthening a total of 750 Water Users Associations and rehabilitating and constructing new irrigation schemes that would result in bringing a total of 18000 ha under various forms of irrigation (furrow drip sprinkler)rdquo Multi-purpose dams and 50 weirs were planned for construction during the implementation period as well The NAIP notes that their targets include the use of renewable energy pumps powered by solar ram and windmills which called for 1900 renewable energy pumps in the five-year period101 Estimates at the time of the publication for these water efficiency components was $16925 million As the Government of Zambia works to finalize an updated NAIP for the next five-year period

101 6Zambia_investmentplanpdf

collaboration with the relevant ministries is recommended to review progress made during the 2014ndash2018 period and to understand how any new Green Bank or NCCF program could complement new targets to be defined A specific example of CSA that warrants further explo-ration for funding support is the introduction of efficient irrigation systems for existing farm areas As noted earlier only a fraction of the cultivated land is irrigated today Given the fact that even staple crops such as maize are highly dependent on rainfall the volatility of climate change and less reliable rain patterns in the future mean that investment today in sustainable irrigation practices could secure the long-term viability of the sector

Water-efficient irrigation such as drip irrigation will not only support and conserve a valuable natural resource but also has the potential to improve the productivity and crop yield of existing farm areas By focusing on the improvement of existing farm areas this could reduce de-forestation rates in Zambia and contribute to the countryrsquos GHG emission reduction targets Crop rotation inter-cropping and the introduction of new seed varieties are also important elements of CSA in Zambia The adoption of CSA practices could be supported through a well- designed green finance facility that seeks to tackle issues of technical and capacity limitations inadequate financing

Source 7th NDP Plan

Strategy 1 Improve Production and Productivity

Programmes Programme Outputs

Output Indicator Baseline Plan

TargetTarget

2017 2018 2019 2020 2021

a) Productivity-enhancing technol-ogy development

Climate Smart Agriculture technol-ogies and practices developed and disseminated

Number of Climate Smart Agriculture technologies and practices developed and disseminated

Crops 2 16 2 4 3 3 4

Livestock 0 6 0 2 2 2 0

Fisheries amp Aquaculture 4

4 0 1 1 1 1

Agroforestry practices 3

4 0 2 1 1 0

b) Farm block development

Standard farm blocks with climate proofed infrastructure devel-oped and functional

Number of farm blocks with climate proofed infrastruc-ture developed and operational

0 5 0 0 0 0 5

c) Irrigation Development

Land under irrigation increased

Hectares of land irrigated disaggre-gated by small amp emergent amp large-scale farmers

Small 3690 35400 4400 9400 15400 25400 35400

Emergent amp large scale

75345100000 80000 85000 90000 95000 100000

Number of irriga-tion infrastructures disaggregated by type (weirs multi-purpose dams)

Weirs 10 55 11 11 11 11 11

Dams 2000 35 7 7 7 7 7


or lack of access to appropriate financial products and weak flows of inputs and outputs

Complications amp Opportunities for Climate Smart Agriculture

According to a World Bank analysis CSA can increase crop yields up to 23 However the general low pro-ductivity of existing farming practices means that ldquothese productivity increases are insufficient to avoid further expansion of agricultural land into forest landrdquo ndash placing the countryrsquos climate commitments in jeopardy102 As such careful consideration needs to be given to how CSA is integrated into existing agricultural systems Beyond the identification of possible CSA alternatives for the country several constraining sector-specific factors have been identified that should be scoped into the design of a new Green Bank or NCCF

xFunding and Finance Challenges ndash Based on the Zambia National Agricultural Investment Plan an overall financial gap (not specific to CSA) exists of approximately 298 billion Kwacha ($60523 million) representing 22 of the total funding requirements103 The funding needs noted in the NAIP represent best estimates of what is required to ldquoidentify and prioritize key investment and policy changes in Zambia that are critical to enhancing the desired agricultural productivity growthrdquo104 The calculation made by the Ministry of Agriculture and Livestock assumes contributions by the private sector and beneficiaries Under a scenario where these contributions do not happen the gap increases by approximately 97 The size of this funding gap illustrates the governmentrsquos limited resources which will need to be bolstered by international support and financing

In addition to challenges at the government level access to finance for farmers remains an even greater obstacle particularly for climate change and mitigation measures due to the medium-term time horizon that exists to realize any associated benefits ndash typically three to five years Access to agricultural credit is further reduced by the fact that only 2 of smallholder


103 httpswwwgooglecomurlsa=tamprct=jampq=ampesrc=sampsource=webampcd=ampved=2ahUKEwi15IeEkK_rAhXxc98KHeL3AsoQFjAAegQIAhABampurl=https3A2F2Fwwwresearchgatenet2Fprofile2FAnoop_Srivastava72Fpost2FZambia_agricultural_sector2Fattachment2F59d655f979197b80779acf232FAS253A527949026004992254015028842642772Fdownload2F62BZambia_investment2Bplanpdfampusg=AOvVaw0q3CB7WzSW0L_5aW7njn7Z

104 NAIP 2014-2018

105 CSA Profile Zambia

farmers have formal titles to their farms and few have alternative forms of collateral to pledge This results in smallholders being financially excluded from access to affordable financing solutions including access to long-term credit Furthermore the situation exposes many smallholder farmers to high interest rates or other unfavorable financing terms

xImplications of Budget Allocations ndash With the high reliance that Government places on maize farming for food security and the related subsidies offered to support this crop there is little incentive for farmers to adopt intercropping or crop rotation practices105 The countryrsquos Farmer Input Support Programme (FISP) and the Food Reserve Agency (FRA) are programs that were designed to support small-scale producers of the countryrsquos staple food crop maize The FISP distributes subsidized inputs to promote the production of maize and the FRA serves as a guaranteed buyer providing a minimum price to small-scale farmers for maize and other crops To some extent the FISP and FRA are supporting market dynamics that are not sustainable and may distort the sector The use of funds to prop up the maize market accounted for an average of 79 of agricultural budgetary allocations between 2008 and 2016 It is important to consider that these funds could be more effectively allocated to support longer-term sustainability of the sector The shift in budget allocation will require more capacity building to ensure that the benefits of sustainable farming practices are well understood by all key stakeholders and government decision makers

Under FISP conservation agriculture is already integrated into program design as a prerequisite for eligibility of farming inputs However the monitoring and enforcement of conservation agriculture is weak Furthermore studies have found that adoption of CSA is low and that the bigger challenge is dis-adoption which is reaching rates of 95 Low adoption and high dis-adoption are exacerbated by low and laborious technologies limited availability of labor-saving equipment and limited knowledge and capacity of farmers to maintain the practices after initial support


Similar to conservation agriculture agroforestry has been the other highly promoted CSA practice in Zambia but adoption remains low due to high costs and low availability of seedlings As noted earlier farmers face great difficulty in enduring the longer transition periods that exist before benefits of improved productivity are recognized Thus farmers require more suitably designed financial products such as transition capital

xHigh Upfront Costs Associated with CSA ndash Similar to conventional renewable energy projects implementing CSA can often have higher upfront costs (relative to business as usual) that require innovative financing solutions to bring down the cost of capital While there are some opportunities for women and youth to access this type of CSA related funding through The National Youth Fund these are still limited in scale106 Although the private sector has been involved in CSA related interventions greater scale of these initiatives is required (The Conservation Farming Unit (CFU) is one organization that has promoted conservation agriculture and agroforestry that involves the private sector) Complementing these types of existing initiatives is considered one of the stronger potential angles to accelerate the implementation of more robust CSA plans

xExisting Initiatives Highlight Some Focus on CSA ndash

Several of the larger development partner institutions (including the FAO and UNDP) have been involved in helping the Government of Zambia build enabling environments for CSA implementation including knowledge sharing reviews of CSA investment plans and formulation of strategic frameworks to promote CSA and identify potential funding sources The UKrsquos DFID program Vuna works on identifying and scaling new and existing CSA technologies and supports the identification and development of financial services for smallholder investment in CSA Other participating organizations include the Conservation Farming Unit (CFU) and Community Markets for Conservation (COMACO)

Local organizations such as Grassroots Trust have established demonstration projects that integrate holistic management and landscape approach to


107 Zambia CSA Profile

CSA The focus on low-input (regenerative) cropping enhances natural water cycles and nutrient flows to increase profitability and sustainability This cropping practice also combines agroforestry manure management and soil management ndash resulting in a twofold increase in average maize yields according to the farmers GHG emission reductions from the system design were not quantified Nevertheless significant gaps still remain when it comes to funding CSA-related technology development and dissemination monitoring and evaluation coordination of ongoing CSA efforts as well as improved research systems to develop a stronger evidence base for CSA scale up107

Potential Interventions in Climate Smart Agriculture

xIncreasing Awareness ndash A key aspect to facilitating the flow of investment to CSA and particularly irrigation is to increase awareness amongst all key stakeholders of the opportunities and costs and benefits As described earlier with the lengthy transition period and capital intensity that accompanies adopting CSA practices traditional financing mechanisms will likely be inadequate Furthermore given the complexities noted around access to credit blended finance with a large tranche of concessional funding is needed in order encourage greater capital flows from private investors

xMarket-Specific Financial Products ndash Financing is needed to improve access to inputs such as mechanized equipment or irrigation technology These upfront costs are difficult for farmers to shoulder or finance through operational cash flows Given the lack of assurance of such an investmentrsquos return some form of incentive for banks and farmers is needed Traditional commercial banks are unlikely to have the risk appetite of lending to smallholder farmers without some form of guarantee In addition affordable and flexible loan terms which are not available from conventional financial institutions could help to spur the market With the susceptibility of the agriculture sector more generally financial products that can consider the volatile cash flows of farmers should be explored One such example of cash flow lending could include repayment schedules that are linked to


cost savings associated with the use of more efficient technologies or through a revenue share based on improved crop yields

xTechnical Assistance and Capacity Building ndash In addition to innovative financing solutions that can provide upfront bridging or transition capital to promote the adoption of CSA technologies technical assistance and capacity building at all levels will be required With the high CSA dis-adoption rate observed across the sector the staying power of new practices is likely to be low without proper training and technical support Any design of a program should include this type of funding support along with resources for monitoring and evaluation A focus should be placed on training local cooperatives to become self-sufficient in managing new farming practices and technologies once they are adopted Currently technical support for equipment maintenance and application of new technologies is either not readily available or feeds dis-adoption and can lead to distrust and higher hurdles for future programs to overcome

Recommendations for Climate Smart Agriculture

xGreen Bank and Financing ndash A dedicated Green Bank program could address the financing constraints and complexities highlighted for this sector around access to credit limitations or hesitancy of financial institutions to extend credit and lack of capacity of various actors to weigh benefits against an assessment of risk factors

In contrast to the financing focus that has been received by the renewable energy sector coordination around mobilizing support and financing for CSA has been weak As a result immediate opportunities should be focused on greater funding for pilot projects as opposed to a fully scaled green finance program that addresses existing project pipeline While both the DBZ and IDC do have an existing focus on agriculture DBZrsquos current mandate and focus on smaller projects may be more amenable to integrating financing products and solutions for CSA adoption in rural areas IDCrsquos portfolio has mainly focused on investments in enterprises in markets such as agroforestry and sustainable forestry as opposed to funding projects in the agriculture sector In addition given the size of projects financed by the IDC through its other

portfolios further investigation into the entityrsquos general appetite to look at investing in smaller companies in the CSA space needs to be determined

xNCCF and Grant Funding ndash An NCCF that focuses on promoting efficient irrigation technologies is where grant funding may have the greatest impact Despite efforts to-date by development organizations and others to expand the adoption of CSA practices there has been limited focus on actual project development and roll-out Given the overlap that exists between the countryrsquos own targets for irrigated farmland and specific goals for increasing the integration of climate smart technologies in the agricultural sector some of the push needed will have to come from external actors to move forward beyond discussions on policy and establishing enabling environments Actors such as the World Bank and DFID UK have done a lot of the foundational work and education and although more of this type of activity is needed the focus of a NCCF should be on larger scale pilot projects Grant funding of this nature should also target the exploration and feasibility of alternative types of market-based financing solutions to address the challenges noted earlier in the complications section around issues of risk and lack of appropriate agricultural credit products

III CONCLUSION

Zambia faces serious challenges for meeting its SDG and NDC goals including serious constraints in its banking sector and sovereign borrowing Despite these challeng-es there is a strong need and clear potential for a Green Bank andor NCCF to support both the Climate Smart Agriculture and energy sectors in Zambia

A key challenge for any new Green Bank andor NCCF will be raising capital as debt issuance constraints will make it a challenge for Zambia (as the host government) to be a capital contributor to any such initiative However the potential for non-sovereign resources to capitalize a new green finance program can also be explored

If funding limitations can be overcome a promising focus within the agriculture sector lies in broader dissemination and longer-term adoption of CSA specifically efficient irrigation systems With funding from the international development community or climate funds patient capital can be directed to encourage greater participation by


leveraging various tools such as the provision of direct loans credit enhancements in the form of guarantees funding for technical assistance and capacity building pro-grams or wholesale funding to local intermediaries Green financing initiatives will have the greatest impact in the energy sector if used to address project preparation capacity building reduction of project financing costs and risk mitigation for the variety of system risks experienced by commercial lenders or private developers

The energy and agriculture sectors in Zambia are in need of external support and a mix of green finance and grant funding are important parts of the solution The country is going through a volatile period and additive program sup-port needs to be timed and assessed carefully As high-lighted above in-country partners such as DBZ IDC REA and the Ministry of National Development Planning have been identified as potential host institutions and partners for new program design Each of these organizations are developing different but complementary project pipelines that tackle the issues surrounding rural electrification Climate smart agriculture has its own challenges and is in earlier stages of development in Zambia therefore any grant funding or green financing should be focused on scaling up CSA practices and implementing larger demon-stration projects


GHANA

108 httpswwwdoingbusinessorgcontentdamdoingBusinesspdfdb2020DB20-FS-SSApdf

109 httpswwwafdborgencountrieswest-africaghanaghana-economic-outlook


111 httpswwwtheafricareportcom16814ghana-oil-production-to-double-to-over-400000bpd-in-next-four-years

112 httpwwwfaoorgghanafao-in-ghanaghana-at-a-glanceen


114 httpswwwimforgenNewsArticles20191212pr19455-ghana-imf-executive-board-concludes-2019-article-iv-consultation-with-ghana

115 httpswwwreuterscomarticleimf-worldbank-africaafrican-debt-stabilising-but-region-faces-headwinds-imf-idUSL5N2732RE

116 httpswwwboggovghmonetary-policypolicy-rate-trends

117 httpswwwbloombergcomnewsarticles2020-03-18ghana-central-bank-cuts-benchmark-rate-to-14-5-from-16

118 httpsdataworldbankorgindicatorFPCPITOTLZGlocations=GH

119 httpswwwbloombergcomnewsarticles2019-12-05there-s-no-escaping-quarter-century-losing-run-for-ghana-s-cedi

120 httpswwwcabri-sboorgendocumentslong-term-national-development-plan-for-ghana-2018-2057

I COUNTRY OVERVIEW

Ghana is one of the fastest-growing economies in West Africa due to a number of factors including general political stability relatively

high ease of doing business compared to regional peers and existence of natural resources including recent oil and natural gas discoveries108 Prior to COVID 19 Ghana experienced an estimated 71 GDP growth in 2019 which continued its multi-year growth trend109 The industrial sector (including oil and gas) was the main growth driver delivering an average 10 annual growth between 2016-2019110 Although world oil prices are currently low recent estimates show that Ghanarsquos emergent oil and gas sector could double production by 2023 with the potential to reap additional tax revenues by better enforcing current legislation111 Another key economic driver is Ghanarsquos agriculture sector Although the industrial sector delivers stronger growth Ghana relies on agriculture for 52 of employment as well as for 40 of its export earnings112 Cash crops such as cocoa oil palm coffee rubber cotton and tobacco are Ghanarsquos primary agricultural export products113 Thus Ghanarsquos economy still revolves around the extraction and export of raw materials

Nevertheless Ghana faces macroeconomic headwinds in the form of high public debt and a high interest rate envi-ronment According to the IMF Ghanarsquos debt-to-GDP ratio stood at 59 in 2018114 Years of funding high budget deficits through public borrowing has put Ghana at risk of debt distress115 These elevated debt levels have led to generally high interest rates from Ghanarsquos central bank

The policy rate peaked at 26 in 2016 but has fallen since 116 As of March 2020 Ghanarsquos monetary policy rate is set at 145 an 8-year low117

Inflation and exchange rates also add to Ghanarsquos mac-roeconomic pressures While inflation has fallen from 17 in 2016 to 98 in 2018 ndash these inflation rates still negatively affect investment and lead to foreign currency exchange issues118 Ghanarsquos national currency ndash the Cedi (GHS) ndash has consistently depreciated against the US dollar over the past 25 years in part due to Ghanarsquos persistent fiscal deficits and debt issues119 With these economic headwinds and the emerging effects of COVID 19 Ghana may face difficulty in financing new projects to grow and diversify its economy ndash including green technologies such as renewable energy and climate smart agriculture

In terms of economic planning Ghana has adopted a 40-year long-term national development plan for 2018ndash2057 which is split into four 10-year medium term plans This plan builds on the progress made under Ghanarsquos previ-ous national development plans ie the Ghana Poverty Reduction Strategy and the Ghana Shared Growth and Development Agenda I and II Three major sectors of the economy are highlighted ndash industry agriculture and services ndash that will require significant investment and that must be able to withstand economic and natural shocks A major goal of the current development plan is to build an ldquoindustrialized inclusive and resilient economyrdquo120 To achieve this goal the long-term development plan fea-tures a National Infrastructure Development Plan which prioritizes energy (renewable and non-renewable) mobility


ICT connectivity water and urban and rural develop-ment121 From a planning perspective Ghana has room to develop its energy agriculture and urbanization and transport sectors to address climate change It should be noted that 2020 was an election year in Ghana so chang-es in development priorities may result from any potential election outcomes

Ghanarsquos banking system features 23 relatively well- capitalized banks thanks to recent rounds of bank governance and financial de-risking reforms initiated in 2017 A minimum capital directive was the most notable of these reforms resulting in a wave of bank consolida-tion that ultimately helped increase Ghanarsquos total bank-ing sector operating assets by 113122 Nevertheless Ghanarsquos non-performing assets ratio remains elevated at 98 in 2018123 This high non-performing asset ratio has slowed credit growth in Ghana which hinders the ability of businesses to access credit from banks In addition the base rate for commercial loans in Ghana is very high particularly for projects or technologies with less track record which further increases the difficulty in getting financing that fits the needs of green projects124 Though Ghanarsquos banking sector is making progress on de-risking its operations Ghanaian businesses and projects still face hurdles in obtaining adequate financing

Other sources of capital include non-bank financial institutions and the Ghana Stock Exchange Made up of savings and loans companies finance houses mortgage finance companies and leasing companies Ghanarsquos non-bank financial institutions hold combined assets worth 114 billion GHS (c $22 billion) at the outset of 2019125 Rural and community banks also play an important role in Ghanarsquos financing sector representing a combined asset base of 41 billion GHS (c $7941 million)126 In addition


122 httpswwwpwccomghenassetspdfghana-banking-survey-2019pdf



125 httpsoxfordbusinessgroupcomoverviewrestoring-confidence-sector-clean-led-regulators-has-resulted-smaller-more-sustainable-industry


127 httpsgsecomghoverview

128 httpsunfcccintsitesdefaultfilesresourcegh_nir4-1pdf

129 httpswwwrainforesttrustorgghana-lost-over-half-of-its-rainforest-in-2018-rainforest-trust-refuge-expansion-will-combat-further-deforestation~text=News-Ghana20Lost20Over20Half20of20Its20Rainforest20in2020182C20RainforestRefuge20Expansion20Combats20Further20Deforestationamptext=According20to20a20new20report602520decrease20in20primary20rainforest

130 httpsdataworldbankorgindicatorSPPOPGROWlocations=GH

131 httpswwwieaorgdata-and-statisticscountry=GHANAampfuel=Energy20supplyampindicator=Total20primary20energy20supply20(TPES)20by20source

132 httpswwwieaorgdata-and-statisticsdata-tablescountry=GHANAampenergy=Renewables202620wasteampyear=2017

133 httpswwwieaorgdata-and-statisticsdata-tablescountry=GHANAampenergy=Oilampyear=2017


the Ghana Stock Exchange has a total market capitaliza-tion of 56 billion GHS (c $98 billion) as of December 16 2019 with 42 companies and two corporate bonds are listed on the exchange127

Ghanarsquos carbon emissions are mainly driven by its land use and energy sectors As of 2016 the UNFCCC esti-mated that out of the 422 million tons (MT) of CO2e that Ghana emitted that year 305 came from land use change and 238 came from its agriculture sector128 These drivers are a result of rapid deforestation as well as population growth that is consistently above 2129 130 The energy sector also drives Ghanarsquos emissions as 186 of emissions came from burning diesel and natural gas at power plants while another 17 came from its transpor-tation sector Ghanarsquos Nationally Determined Contribution (NDC) states that the country aims to reduce its emissions by 45 from a BAU scenario by 2030

Energy Context

Biomass and oil provide the majority of Ghanarsquos primary energy mix followed by natural gas and hydro According to the International Energy Agency (IEA) biomass and oil represented 42 and 41 of Ghanarsquos energy supply in 2017 respectively131 Most of this biomass is directly burned to provide residential heating lighting and cook-ing services132 Most of Ghanarsquos oil use comes from im-ports ndash mainly gasoline and diesel ndash for its transportation sector133 Although Ghana is an emerging crude oil pro-ducer the country must still import the majority of its oil products because Ghana only has one domestic refinery at Tema Natural gas and hydro power make up most of the remaining energy mix at 11 and 5 respectively134 Finally non-hydro renewable energy (solar and wind) only provides 002 of Ghanarsquos primary energy supply


Ghana has achieved strong gains in access to electricity thanks to a concentrated policy push According to the World Bank Ghanarsquos access to electricity soared from 30 to 82 between 1993 to 2018135 Nevertheless 50 of Ghanarsquos rural population and 9 of its urban population still lack electricity Ghana has set a goal in its National Electrification Scheme of achieving full electrifica-tion of the country by 2025 which will require electrifying the more remote and challenging areas potentially with mini-grids 136 137

Currently natural gas and large-scale hydropower are the main sources of Ghanarsquos electricity generation According to the IEA domestic natural gas provided around 46 of Ghanarsquos electricity in 2017 while hydropower provid-ed around 40 of Ghanarsquos electricity in 2017 most of which generated by the Akosombo Dam on the Volta River138 Nevertheless droughts in recent years have led to low reservoir levels at the Akosombo Dam In 2018 Akosombo could only operate three turbines out of the six units during off-peak periods and only four turbines during peak periods In total only about half the countryrsquos hydropower installed capacity is available at any given time139 The remainder of Ghanarsquos electricity generation mix comes from oil (mainly diesel-powered plants)140 Despite the existence of potential non-hydro renewables resources solar and wind electricity generation in Ghana remains negligible141

Ghana currently faces a near-term electricity oversupply situation with electricity supply exceeding maximum de-mand and high wholesale prices based on past contracts signed However hydropower constraints due to drought (which may become more frequent and more severe due to climate change) alongside population and economic growth forecasts make it likely that Ghana may face a longer-term power shortage in the next decade Given the rate of electricity demand growth the current oversupply

135 httpsdataworldbankorgindicatorEGELCACCSZSlocations=GH

136 httpssun-connect-newsorgfileadminDATEIENDateienNewPAOP-Ghana-MarketAssessment-Final_508pdf

137 httpswwwcgdevorgsitesdefaultfileselectricity-situation-ghana-challenges-and-opportunitiespdf


139 httpswwwhydropowerorgcountry-profilesghana~text=Hydropower20generation20has20declined20inend20of20the20dry20season

140 httpswwwieaorgdata-and-statisticsdata-tablescountry=GHANAampenergy=Electricityampyear=2017


142 httpenergycomgovghplanningdata-centerenergy-outlook-for-ghanadownload=105energy-outlook-for-ghana-2020-final-draft

143 httpstheconversationcomlessons-to-be-learnt-from-ghanas-excess-electricity-shambles-121257

144 httpsenergsustainsocbiomedcentralcomarticles101186s13705-016-0075-ytables2


146 httpsoxfordbusinessgroupcomoverviewpower-moves-drive-develop-electricity-infrastructure-ends-period-unstable-supply-government-moves


will not be adequate to supply Ghanarsquos estimated pow-er needs by 2030 Hence additional investment will be needed in the medium term as Ghanarsquos economy grows and diversifies

In terms of the recent power build-out Ghanarsquos installed capacity reached 5171MW as of 2019 which is nearly double the amount needed to meet its peak electricity de-mand142 This temporary oversupply of generation capac-ity stems from a campaign to end electricity shortages in the country In 2014 the Ghanaian government signed 43 ldquotake-or-payrdquo (paying for a set volume of electricity regard-less of actual usage or need) power purchase agreements with three emergency power producers143 144 Given that power demand growth slowed between 2014ndash2017 due to electricity tariff increases and lower economic growth Ghana is unable to absorb the additional power genera-tion145 It is important to note that almost all of this new capacity is from new fossil fuel power plants and expan-sion of existing ones

This temporary oversupply has created a near-term financial burden for Ghana As a result of the inflexible ldquotake-or-payrdquo contracts Ghana was paying nearly 25 billion Ghanaian cedi (c $484 million) in 2019 for electrici-ty that it does not need as well as potentially paying $850 million for excess natural gas in 2020146 Thus Ghana has announced its intention to convert all of its power purchase agreements to ldquotake-and-payrdquo contracts which means the government only pays for power that it uses147 Although this arrangement would help generate savings for the government in the short term this policy may inad-vertently lead to a power supply shortage in the long-term as developers and investors adjust their regulatory risk assessment of Ghanarsquos energy market

The major players in Ghanarsquos energy space are as follows The Ministry of Energy the Energy Commission (EC) and


the Public Utilities Regulatory Commission (PURC) are the main public entities tasked with overseeing Ghanarsquos pow-er sector The Ministry of Energy has two primary respon-sibilities 1) Formulating and evaluating policies programs and projects for Ghanarsquos power sector and 2) implement-ing the National Electrification Scheme148

xx The Energy Commission helps issue licenses to operators and advises the Ministry of Energy on policy issues while the PURC is an independent agency that sets electricity tariff rates and monitors the quality of electricity provision149

xx Ghana has a decentralized power sector structure On the generation side Ghana broke up its former state-owned vertically integrated monopoly Volta River Authority (VRA) in 2005150 That same year Ghana allowed independent power producers (IPPs) to connect to the grid151 As of 2019 IPPs supply about 45 of the countryrsquos generation capacity while the VRA owns the remaining generation capacity152 xx The Ghana Grid Company (GridCo) manages

transmission of the national grid xx Distribution of electricity to final consumers is the

responsibility of two state owned companies the Electricity Company of Ghana (ECG) and the Northern Electricity Distribution Company (NEDCo)153

Ghana holds high ambitions for a renewable energy build-out but governmental policies have not yet translated these ambitions into meaningful progress According to the National Energy Policy of Ghana enacted in 2010 the government set a goal of a 10 share for non-hydro re-newable energy in the national electricity mix by 2020 as well as 100 electrification neither of which were met154

During the push to achieve its energy goals Ghanarsquos Energy Commission had enacted the Renewable Energy







154 httpswwwgreengrowthknowledgeorgsitesdefaultfilesdownloadspolicy-databaseGHANA2920National20Energy20Policypdf

155 httpwebcachegoogleusercontentcomsearchq=cache3REGzI1paHIJwwwenergycomgovghfilesRenewable-Energy-Masterplan-February-2019pdf+ampcd=8amphl=enampct=clnkampgl=us

156 httpwwwpurccomghpurcsitesdefaultfilesfit_2014pdf


158 httpswwwjstororgstablepdf26256493pdfrefreqid=excelsior3Ace678f61d30a9eaa20c7242f27654160

159 httpsprojectsworldbankorgenprojects-operationsproject-detailP074191

160 httpdocuments1worldbankorgcurateden137111468255865160pdfPAD12600PJPR0I010Box391426B00OUO090pdf

Act 2011 Act 823 This act established two mechanisms to incentivize investment in renewables155

1 A renewable energy feed-in tariff (REFiT)2 A renewable energy purchase obligation (RPO)

Both of these policies sought to guarantee profitable cashflows for renewable energy projects and support de-mand for renewable energy Ghanarsquos PURC began setting the first feed-in tariffs in 2014 However these feed-in tariffs had to adhere to strict provisions focused on grid reliability and stability which had a depressing effect on development156

In addition the Renewable Energy Act established a man-datory connection policy that allowed unfettered grid ac-cess for renewable energy as well as a Renewable Energy Fund157 However the design of the feed-in tariff program limited the size of eligible wind and solar projects Also Ghanarsquos distribution companies have reputations as risky off-takers due to their high levels of indebtedness which undercut the effectiveness of Ghanarsquos pre-renewables policies158

In recent years Ghana has also pursued other policies and initiatives aimed at supporting renewable energy development including the Ghana Energy Development and Access Project (GEDAP) as well as the Scaling-up Renewable Energy Program (SREP) as part of the Ghana Investment Plan The GEDAP is a multi-donor funded project initiated in 2007 and set to run through 2022 and has been primarily focused on strengthening the financial position of the state-owned distribution company ECG including improved revenue collection and cash manage-ment159 Despite progress made ECG still struggles to reach its financial performance goals160 The project also supported five pilot solar mini-grid projects in isolated


communities on islands in the Volta Lake and around the Volta River161

The SREP is funded by the Climate Investment Funds and the Ghana program was established in 2015 by the then-Ministry of Power (now folded into the Ministry of Energy) The SREP initiative is designed to focus on three areas of support162

1 Renewable energy mini-grids and stand-alone solar PV systemsa This initiative envisioned public sector investment

from the African Development Bank and the Ministry of Energy in 55 renewable mini-grids and private sector investment in stand-alone solar PV systems to benefit 33000 households 1350 schools 500 health centers and 400 communities

2 Rooftop Solar PV based net metering with battery storagea This initiative was meant to develop a

comprehensive net metering program and the deployment of at least 15000 units of roof-mounted solar PV systems to reduce the economic cost of power on small and medium-sized enterprises (SMEs) and households and increase renewable energy contributions in the electricity generation mix by 25ndash30MW This initiative also envisioned the creation of a credit recovery facility and financing instruments developed to support rooftop solar

3 Utility-scale solar PVwind power generationa The objective of this initiative is to assist the

Government of Ghana overcome key barriers that prevent the growth and expansion of the utility-scale solar PV and wind market in Ghana by catalyzing the first project financed utility-scale renewable energy plants

In February 2020 Ghana in partnership with AfDB re-leased a call for proposals for consultants to help imple-ment key components of the SREP program including the design of programs to support the development of mini-grids off-grid solar facilities and a national net metering

161 httpsallafricacomstories202008140111html

162 httpswwwclimateinvestmentfundsorgsitescif_encfilesmeeting-documentssrep_ip_presentation_ghana_may13_2015_0pdf

163 httpswwwpv-magazinecom20200210new-impetus-for-ghanas-solar-ambitions

164 httpwwwenergycomgovghfilesRenewable-Energy-Masterplan-February-2019pdf

165 httpsoxfordbusinessgroupcomnewswill-renewables-expand-ghanaE28099s-economy




scheme for PV In addition the utility-scale solar aspect of the SREP program has seen progress VRA has begun building two PV power plants with a total generation ca-pacity of 17MW in the Upper West Region of the country This development comes two years after the VRA secured funds for the solar projects from Germanyrsquos KfW163

Ghanarsquos recently released Renewable Energy Master Plan (REMP) aims to revamp the National Energy Policy and set targets for 2030 Starting in 2019 the REMP aims to achieve the following goals164

1 Increasing the amount of renewable energy capacity from 425MW in 2015 to 1363MW in 2030 (with 1094MW of on-grid capacity) This translates into 447MW of solar 325MW of wind 122MW of biomasswaste-to-energy and 200MW of small-scale hydropower and wave energy

2 Reduce the dependence on biomass as the main fuel for thermal energy applications

3 Provide renewable energy-based decentralized electrification options in 1000 off-grid communities

4 Promote local content and local participation in the renewable energy industry

This plan estimates that the capacity buildout will create a total of 220000 new jobs and cut carbon emissions by 11 MT165 The REMP has a total investment need of $56 billion (or $460 millionyear) 80 of which would come from the private sector166 In order to attract private sector participation the plan stipulates that investors can receive exemptions on customs duties for imports of equipment as well as reduced corporate income tax of 25 and other location-based incentives167 168 However currency risk and depreciation as well as the relatively high-interest rate regime may continue to hold back these renewable energy investment While Ghana has the stated vision for an overhaul of its energy system towards renewables the current suite of policies and support may still be insuf-ficient to meet the REMPrsquos ambitious clean energy and electrification targets


Off-grid solutions have been folded into Ghanarsquos REMP such as the Mini-Grid Electrification Policy The utili-ties VRA PDS and the Northern Electricity Distribution Company would lead mini-grid implementation and own-ership with an installation target of 86 systems by 2020 and 200 systems by 2030 (compared to around 22 sys-tems installed today)169 Most of Ghanarsquos mini-grid pipeline has been funded by donors such as the World Bank and the AfDB170 Black Star Energy is the only private operator of multiple mini-grids in Ghana with 17 systems deployed that serve approximately 6000 customers171 Although Ghanarsquos Energy Commission drafted legislation in 2017 that authorized private companies to develop mini-grids with up to 1MW of capacity Ghanarsquos slow progress on attaining its mini-grid goals may reflect the difficult overall enabling environment in the country Not only do mini-grids face the usual challenges of lack of long-term and affordable financing but also face electricity tariffs that are below cost which further complicates efforts to attract financing172

Ghana also views energy efficiency as a critical element in the management of its energy resources Ghanarsquos en-ergy efficiency targets are guided by its National Energy Efficiency Action Plan (NEEAP) 2015ndash2020173 This plan outlines the following national energy efficiency targets

1 A reduction of 200MWndash220MW in peak electricity demand by 2020 To achieve this goal Ghana implemented a campaign to distribute 6 million compact florescent lamps in exchange for incandescent filament lamps for households in 2007 Funded with $15 million from the GEF this program led to a reduction of 124MW in peak load requirements174

2 Establishment of energy efficiency standards for appliances and buildings One of Ghanarsquos more successful policies was a refrigerator rebate program that encouraged trading in old fridges for more energy





173 httpswwwse4all-africaorgfileadminuploadsse4allDocumentsCountry_PANEEGhana_National_Energy_Efficiency_Action_Planpdf

174 httpsclimatestrategiesorgwp-contentuploads201501Climate-Technology-and-Development-Case-Study-Compact-Fluorescent-Lamps-CFLs-Rob-Byrne-finalpdf

175 httpwwwenergycomgovghfilesThe20Success20story20of20the20Energy20Efficient20Refrigerator20Projectpdf


177 httpwwwenergycomgovghbackup-16-08-15energy_19_2_13downloads200eb95d5ded42b4a159010a5baa00efpdf

178 httpswwwmccgovwhere-we-workprogramghana-power-compact~text=MCC20is20supporting20the20Government20of20Ghana20in20offsetting20demanddemand20side20management20measures2C20like

179 httpswwwmathematicaorgdownload-mediaMediaItemId=B09C8213-9032-4D44-BB5B-3B128EA39BEF


efficiency modules By the end of the program in 2015 Ghana had replaced around 10000 fridges (against a goal of 15000) and apparently saved 400GWh of electricity in that year175 Ghana has also passed various laws to encourage energy efficiency in buildings but these codes have either not entered into force nor been updated in over a decade176

Part of the funding for these energy efficiency measures comes from the Electricity Demand Management Fund which is nested under the Energy Commission This fund accrues money from a power factor surcharge imposed on commercial and industrial customers that fail to meet a predetermined power factor threshold177 However this fund has apparently not been used to great effect in sup-porting energy efficiency improvements

Importantly the Millennium Challenge Corporation (MCC) ndash an US foreign assistance agency ndash is supporting Ghana in improving energy efficiency as part of its $308 million Ghana Power Compact178 While this Power Compact supports multiple aspects in the power sector such as power generation energy access and strengthening of utility companies it also includes $22 million for an en-ergy efficiency and demand side management (EEDSM) project This project involves developing improved or new efficiency standards for appliances encouraging educa-tion and more efficient energy use among consumers investing in more efficient government buildings and exploring demand side management measures such as converting streetlights to more efficient LED technology179 The Power Compact not only helps define the standards for appliances but also supports Ghana in establishing the legislative framework that enforces them In addi-tion the Power Compact helps conduct energy audits of government buildings and trains teams of energy auditors especially since energy audits are uncommon180 Thus the MCC further builds upon Ghanarsquos efforts to enhance


energy efficiency for the country and provides dedicated funding for this purpose

Climate Smart Agriculture Context

Ghanarsquos agriculture sector is central to its economy but is also highly exposed to climate change Given that agriculture provides one of the main sources of employment in Ghana ensuring agricultural resilience is crucial to maintaining continued economic growth and social stability Ghanarsquos agricultural products are composed of both cash crops and food crops Cocoa rubber oil palm coffee cotton and tobacco are the predominant cash crops while cassava yam maize and plantains are the main food crops181 In terms of farm size around 85 of farms are less than two hectares with 60 of all farms less than 12 hectares in size182 These figures demonstrate the outsize role of smallholder farmers in Ghanarsquos agricultural sector Out of all the land that is under cultivation only 19 is irrigated meaning that most of these smallholder farmers are constantly threatened by drought183 In keeping with Ghanarsquos Long-term National Development Plan CSA is seen as a way to help the agriculture improve its resiliency to future economic and natural shocks

Forestry also plays an important role in Ghanarsquos economy Not only does forestry contribute to 4 of Ghanarsquos GDP it employs about 120000 Ghanaians in its formal sector and around 780000 Ghanaians in its informal sector184 In addition the timber industry is the fourth largest foreign exchange earner after minerals cocoa and oil exports However Ghana is experiencing one of the highest rates of deforestation in the world Between 1990ndash2016 Ghana lost nearly 80 of its forest resources due to illegal log-ging activity mainly stemming from land clearing for cocoa plantations as well as from illegal small-scale mining activities185 Addressing the deforestation issue has the potential to strengthen Ghanarsquos natural capital as well as help achieve Ghanarsquos climate change goals by avoiding future emissions




184 httpswwwgipcghanacominvest-in-ghanasectors75-forestry313-investing-in-ghana-s-forestry-sectorhtml

185 httpswwwweforumorgagenda201905ghana-is-losing-its-rainforest-faster-than-any-other-country-in-the-world

186 httpscgspacecgiarorgbitstreamhandle1056869000httpCCAFS_WP139_CSA_Ghana_novpdf

187 httpextwprlegs1faoorgdocspdfgha169288pdf



The Ministry of Food and Agriculture is the main poli-cymaking body for agriculture in Ghana including CSA practices In order to help the ministry establish an im-plementation framework for the effective development of CSA the CGIAR Research Program on Climate Change Agriculture and Food Security (CCAFS) prepared a work-ing paper ndash the National Climate-Smart Agriculture and Food Security Action Plan of Ghana (2016ndash2020)186 This National Climate-Smart Agriculture plan represents the Food Security and Agriculture portion of Ghanarsquos overar-ching National Climate Change Policy This plan recog-nizes that the sustainability of natural resources including land forest water and genetic biodiversity is significantly influenced by agricultural practices and that sustainable agricultural systems are crucial for poverty alleviation187

The expected outputs from the implementation of the Action Plan will include the following

xx Climate-resilient agriculture and food systems for all agro-ecological zonesxx Enhanced expertise for climate-resilient agriculture

at all levels eg researchers agriculture extension officers and farmersxx Policy makers sensitized on climate-smart practices in

agriculturexx Multi-sectoral institutional mechanisms that support

climate-smart agriculture (policy and finance)

In particular the plan groups Ghanarsquos land area into three agricultural land types and recommends specific policy prescriptions for each one water conservation and effi-cient irrigation systems for the Savannah Zone the devel-opment of livestock production systems for the Transition Zone and development and promotion of climate-resilient cropping systems for the Forest Zone188 The plan also lists policy prescriptions such as developing institutional capacity for CSA research promoting climate-resilient cropping systems supporting climate adaptation for fish-eries risk transfer systems (ie insurance) and improved post-harvest management189


In terms of implementing these policies access to fi-nance is consistently cited as the main barrier that inhibits growth in the agriculture sector190 Ghana does not have a dedicated facility or financial support program specifically for CSA practices and many agriculture subsectors (with the exception of cocoa) lack strong government value chain support or programs designed to increase produc-tivity and climate resilience However Ghana does have various other facilities that provide funds for agriculture- related uses One of the main providers of credit is the Agricultural Development Bank which provides around 85 of institutional credit to Ghanarsquos farmers191 Rural and community banks can also help provide additional sources of finance with a particular focus on working capital loans In 2010 the Alliance for a Green Revolution in Africa (AGRA) working with Danish donor DANIDA created a loan guarantee program to support agriculture lending at commercial banks including Stanbic Ghana UT Bank and Sinapi Aba Trust Under this program for every commercial bank loan to a qualifying agriculture projects AGRA will guarantee 20 of the loan in the first year 15 during the second year and 10 between the third and fifth years The program intends to reach at least 5000 smallholder farmers with total lending of $25 million192 However some developers have struggled to access the program citing complicated eligibility require-ments and long processing times

DANIDA also established the Rural Development Fund (RDF) in collaboration with Ghanarsquos Ministry of Finance to offer loan facilities to financial institutions (FIs) for the pur-poses of lowering the cost of finance for Micro Small and Medium Enterprises (MSMEs) The idea is to offer lines of credit and loan guarantees to entities such as univer-sal banks rural banks and other FIs to provide liquidity support and de-risk lending to the agriculture and renew-able energy sectors193 Specifically the RDF offers lines of credit for up to five million GHS for five years at preferen-tial interest rates in order to finance loans for agribusiness renewable energy microfinance manufacturing services

190 httpsthepalladiumgroupcomnewsTransforming-the-Agrifinance-Market-System-in-Ghana

191 httpswwwmodernghanacomnews908123financing-agriculture-in-ghana-the-plight-ofhtml


193 httpswwwrdfghanacomservices


195 httpswwwrdfghanacomfaq



198 USAID Financing Ghanaian Agriculture Project (USAID FinGAP) Rick Dvorin May 10 2018


200 httpmlnrgovghindexphpprograms-projectsghana-forest-investment-program-fip

commerce and other types of rural MSMEs related to agriculture or renewable energy194 195 The RDF can also cover 50 of losses on term loans and loan portfolios related to the agriculture or renewable energy sectors196

Separately USAID initiated the 5-year program called Financing Ghanaian Agriculture Project (USAID-FinGAP) in 2013197 The program was designed to challenge the tra-ditional view of agriculture as inherently risky and percep-tions of small and medium-sized enterprises in agriculture as an unprofitable market segment The FinGAP program focused on several market interventions including ldquopay for resultsrdquo grants to participating FIs business advisory and technical assistance support support for the use of alternative financing (eg Ghana Stock Exchange) and risk mitigation tools (eg subsidizing the cost of guaran-tees from eg EXIM bank)198 At the end of the five year program there was a reported 344 increase in the number of farmers receiving loans as well as $260 million in new financing unlocked199

In the forestry sector Ghana has two main initiatives targeted at supporting sustainable forestry projects the Ghana Forest Investment Programme (GFIP) supported by the Climate Investment Funds (CIF) and the National Forest Plantation Development Programme (NFPDP) The GFIP offered $50 million (disbursed through multilateral development banks eg World Bank AfDB etc) to fund three project areas200

1 Enhancing natural forest and agro-forest landscape $30 million grant-based initiative managed by the World Bank with a focus on capacity building policy reforms and pilot projects

2 Engaging local communities in reducing emissions from deforestation and forest degradation (REDD+) $15 million grant-based initiative managed by the African Development Bank focused on restoration of degraded lands promoting climate smart and environmentally responsible cocoa and agroforestry


systems as well as promotion of alternative livelihoods and capacity building

3 Engaging the private sector in REDD+ $10 million initiative by IFC This project was later discontinued by IFC due to the private sector being unable to meet the fiduciary requirements of the IFC The allocated budget was then shifted to a concessional loan taken by the government of Ghana to support private sector investment in plantations

The NFPDP is carried out by Ghanarsquos Forestry Commission and aims to restore forest cover on de-graded lands through increased tree plantations reduce the wood supply deficit in the country and enhance food security all the while creating employment to combat rural poverty201 This program is supported by an accompa-nying Forest Plantations Development Fund202 The Fund was established in 2002 but has suffered from low levels of uptake and awareness203 As of 2014 the program had supported an estimated 180000ha (80 public sector 20 private sector) of forest plantations with a focus on tree species such as teak cedrela and eucalyptus

Industrial and Manufacturing Context

The industrial and manufacturing sector forms an import-ant part of the Ghanaian economy representing 10 of GDP as of 2019204 As part of Ghanarsquos development strategy the government is trying to both upgrade and diversify its industrial base which would also create new jobs One of the key pillars of this effort is the One District One Factory (1D1F) plan Initiated in 2017 by the current Ghanaian administration this plan aims to establish at least one medium-to-large scale enterprise in each of Ghanarsquos 216 districts205 The 1D1F plan is slated to create between 15 to 32 million jobs by the end of 2020206 The private sector would supposedly lead a nationwide

201 httpswwwfcghanaorgpagephppage=291ampsection=28amptyp=1

202 httpswwwtropenbosorgnewsmore+than+half+of+ghanaian+tree+plantation+farmers+unaware+of+forest+plantations+development+fund


204 httpsdataworldbankorgindicatorNVINDMANFZSlocations=GH

205 httpsoxfordbusinessgroupcomoverviewcapacity-building-financial-stability-and-openness-international-investment-support-burgeoning


207 http1d1fgovgh

208 httpswwwghanawebcomGhanaHomePagebusiness300m-for-1D1F-742212

209 httpswwwgcbbankcomghnews-from-gcb514-gcb-funded-1d1f-factory-commissioned

210 http1d1fgovghwp-contentuploads201711DISTRICT-INDUSTRIALISATION-FOR-JOBS-WEALTH-CREATIONpptx

211 httpsoxfordbusinessgroupcomanalysisfactory-force-government-incentives-encourage-private-sector-build-value-added-processing-facilities

212 httpswwwghanawebcomGhanaHomePagebusinessAgro-processing-projects-lead-1D1F-coming-on-stream-this-year-781581

213 httpswwwwiderunuedusitesdefaultfileswp2017-9pdf

214 httpenergycomgovghrettphocadownloadrempDraft-Renewable-Energy-Masterplanpdf

industrialization program to make the most of local resources in manufacturing products especially in the aluminum pharmaceuticals agricultural processing tex-tiles and apparel sectors207 These projects would receive financial support from both the state and through com-mercial actors For example Ghanarsquos Export-Import Bank received $300 million from the Export-Import Bank of the United States to be channeled towards helping 1D1F proj-ects import machinery while the Ghana Commercial Bank sponsored the Kete-Krachie Timber Recovery factory with its own funds208 209 Both sources of support would invest through equity using both long and short term trade financing and asset financing210 As of early 2019 79 proj-ects have already received support while another 35 were undergoing credit appraisals211

The agro-processing sector is one of its major benefi-ciaries of the 1D1F plan In 2019 nearly 102 out of 183 projects slated for commission in that year were related to the agro-processing sector especially for pineapples rice maize and soybeans212 Given that the agro- processing industry in Ghana is not well advanced as a result of small firm sizes and inefficient technology the 1D1F plan appears to have potential to greatly increase the scale and scope of this sector with potential knock-on effects for both climate-smart agriculture and electricity demand in Ghana213 However the 1D1F plan does not explicitly mention any commitment to implementing projects in a green or sustainable manner

Although energy does not appear to have a prominent role in the 1D1F plan a draft of the Renewable Energy Master Plan calls for greater domestic manufacturing of renew-able energy technologies (RET) by extending tax breaks for the import of critical components and supporting exist-ing RET manufacturing capabilities214 Ghana also appar-ently received support for renewable energy technology


transfers from China under a UNDP program from 2014ndash2018215 It remains to be seen whether this RET manufac-turing drive can help develop Ghanarsquos renewable energy sector in the near future

Green Urbanization and Clean Transport Context

Ghana does not have a strong enabling environment for green urbanization and clean transport Although the Ministry of Local Government and Rural Development established a National Urban Policy and the Ministry of Transport established a National Transport Policy neither of these policies place strong emphasis on climate change issues Although the National Urban Policy has identified the importance of establishing green belts and protect-ing wetlands there has not been a strong policy push on these aspects216 The same situation applies to the National Transport Policy which recognizes the challenges of vehicular emissions and inefficient fuel use but has not implemented a commensurate suite of policy prescriptions or program support217 At the same time Ghana is already experiencing the effects of rapid urbanization including congestion unregulated urban expansion limited access to services and affordable quality housing and institutions unable to cope with the rapid transition218 Both of these policies are currently undergoing review and revisions and may set the stage for increased investment opportunities (including PPP structures) in the future Green urbanization and clean transport will be an increasingly important sec-tor especially in terms of emissions and economic growth as Ghana continues to urbanize and grow its economy Therefore this sector remains a crucial area for additional research and support in the future Nevertheless primary research details on the progress under Ghanarsquos National Transport Policy and National Urban Policy is beyond the scope of this report

II PRIORITY SECTORS

The priority sectors identified as areas of focus for green finance solutions include energy agriculture and industrial and manufacturing Each of these areas is linked to exist-ing government initiatives or policies that seek to bolster the current state


216 httpwwwghanaiandiasporacomwpwp-contentuploads201405ghana-national-urban-policy-action-plan-2012pdf

217 httpslinkspringercomarticle101007s42452-019-1215-8shared-article-renderer

218 httpswwwworldbankorgennewsopinion20150514rising-through-cities-in-ghana-the-time-for-action-is-now-to-fully-benefit-from-the-gains-of-urbanization

219 httpswwwusaidgovpowerafricaghana

As for the other five countries included in the scope of this report the following criteria were utilized to identify these priority sectors

1 Sectors with significant potential to reduce CO2 emissions and have the potential to support the continued efforts of the countryrsquos progress towards meeting NDCs and SDG commitments

2 Potential for project pipeline has been identified through the initial market scoping

3 Significant direct or indirect contributor to the countryrsquos Gross Domestic Product (GDP) and

4 A financing gap exists within the market whereby catalytic green capital is needed or is deemed to be of great importance to make progress towards the countryrsquos NDCs and development goals


Despite the fact that Ghana is in a unique position relative to its continental peers with short-term excess power capacity (on-grid only) the countryrsquos actual power sup-ply rarely surpasses 60 of its installed capacity219 One of the key reasons for this is the countryrsquos exposure to climate variability which has changed rainfall and affected the capacity of hydropower plants With the anticipated increase in electricity demand as linked to projected pop-ulation growth the current lsquoexcess power capacityrsquo will be short-lived Given the anticipated impacts of climate change on Ghanarsquos energy sector and the macroecono-my more broadly the government has a near-term op-portunity to be proactive in a transition to a clean energy economy The integration of renewable energy to stabilize the supply of electricity will also support the governmentrsquos vision of building a larger domestic manufacturing sector that is resilient into the future

The governmentrsquos policies and development plans seek to address several of the outstanding sector issues Specifically the Government of Ghana is focused on

1 Improving rural electrification rates which are still low at 50

2 Achieving climate targets and a strong interest in reducing the countryrsquos dependency on fossil fuels


3 Reducing electricity prices in the country as they remain amongst the highest in the region (and it is acknowledged that renewable energy integration into the energy mix is a way to lower OampM costs) and

4 Identification of sectors that can improve employment opportunities in the country

Ghanarsquos Renewable Energy Master Plan (REMP) aims to increase the proportion of renewable energy in the nation-al energy generation mix to 1364MW of which 1095MW will be grid connected systems by 2030220 Within this target is the countryrsquos goal of providing decentralized renewable energy electrification options to 1000 off-grid communities221 The plan emphasizes solar energy and to a lesser extent other renewable energy technologies but excludes hydropower projects greater than 100MW222 A core attribute of the plan is new job creation ndash the rollout of new installed capacity is expected to create 220000 new jobs and will cut carbon emissions by 11 MT223 Total investment required to achieve the REMPrsquos goals is estimated at approximately $56 billion of which 80 is expected to come from the private sector224

Mini-grids are ideal for islands and lakeside communities which have populations greater than 500 people and are unlikely to be connected to the national grid because of the high costs associated with grid expansion and poor return economics for the national utility Ghana is suitable for solar energy which has been prioritized by the gov-ernment to develop a more diversified energy mix The country also has suitable conditions for wind generation especially along the coast


There are numerous challenges that contribute to the slow uptake of renewable energy development in Ghana Some of the issues in the sector include 225

xx High cost of financingxx Lack of access to longer-term finance alternatives xx Lack of or insufficient incentives such as tax rebatesxx Grid connection constraints and lack of grid capacityxx Volatility of the local currency







xx Technical knowledge limitations to operate and maintain renewable energy technologies

xHigh Cost of Financing and Lack of Access to Longer-term Finance Alternatives ndash Interest rates for debt products in Ghana range from 16 to 25 per annum and usually are not extended for more than a five-year period These terms are unfavorable for project finance transactions that require longer tenor (to reduce refinancing risk for the developer) and lower borrowing rates (to achieve positive economics for project developers) Taking mini-grid projects as an example these projects typically only breakeven after ten years and hence would require better financing terms than what is currently available to cover this period at a minimum

At the beginning of the current administrationrsquos term the government did intervene and lowered rates by approximately five percentage points However this was still insufficient to stimulate growth as financial institutions have alternative investment options that result in more favorable risk return trade-offs

International donors and development organizations have attempted to spur growth in renewable energy by providing loans of five to seven years and at concessional rates But the requirement for co-financing has been identified as a key market constraint Typical programs have included a 50 to 70 financing match requirement which means the project developer would likely need international financing connections or a local bank to provide capital the latter of which has a low probability For smaller or local developers access to international financing is not necessarily viable and hence excludes a segment of private developers from participating in the market There is also arguably a lost opportunity for local financial institutions but given the dynamics of the banking sector in Ghana and prudential regulations potential is low for local banks to play a large financing role in the immediate future without significant support


xGovernment Incentives ndash With the launch of the REMP in 2019 the Ghanaian government acknowledged the need to introduce incentives into the market to attract private sector actors As part of the plan several incentive programs were enacted that focused on the rollout of substantial tax reductions exemptions on import duties and value-added tax through to 2025 on materials components machinery and equipment (only permissible if domestic sourcing is not feasible) and import duty exemptions on plant and plant parts for electricity generation from renewables226

It is still too early to determine if these incentives are adequate in nature or scale The roll-out of the incentives although announced in 2019 were only effective commencing in 2020 The convergence of the COVID 19 pandemic and global recession have likely caused delays and resulted in less international investor interest in emerging markets

xGrid Connection Constraints and Lack of Grid Capacity ndash The existing grid infrastructure requires improvements in order to connect new renewable generation capacity Operational maintenance has been poor due to constrained finances and modernization of the grid is required for the country to achieve its vision of becoming a more industrialized middle-income country Ghana experiences issues with power supply given ldquochanging hydrological conditions inadequate fuel supplied and dilapidated infrastructurerdquo which will negatively affect the economy and slow development plans 227

In January 2020 the government signed a $250 million MOU through GRIDCO with Siemens ldquoto extend Ghanarsquos power transmission infrastructure improve the countryrsquos grid capacity and stability as well as enable and expand a stable power export to neighboring countries in the West African Power Poolrdquo228 This is an important step but given the sectorrsquos financial deficit it is likely that ongoing support will be required Further research on the geographic areas that will be covered as part of the expansion and upgrades is needed particularly to determine plans for roll-out of grid extension in support of rural electrification goals It is likely that this MOU will not support electricity



228 httpsconstructionreviewonlinecom202001ghana-signs-us-250m-power-infrastructure-upgrade-deal


connection for lake and island communities and hence off-grid solutions are still a necessity in the market However the MOU does positively signal that there could be growth potential in the future for more IPPs

xVolatility of Local Currency ndash Most energy projects are costed in terms of USD Given that much of the financing for these projects is secured from international financiers and partners foreign exchange risk is a concern for stakeholders The volatility of the Cedi is predominantly driven by the countryrsquos fiscal challenges (whereby investors lack confidence in the governmentrsquos ability to stay within targeted expenditure limits) and the countryrsquos risk of ldquoovershooting fiscal deficit and debt from arrearsrdquo Ghanarsquos budget deficit continues to worsen as government spending increases to bailout the financial sector and liabilities in the energy sector Lastly the central bank has struggled to build foreign reserves due to the current account deficit which has added to the Cedirsquos weakness Dependence on hard currencies such as the USD may subside in the medium to long-term as the country ramps up its own domestic manufacturing capabilities However in the interim as the country remains a net importer of goods from staple crops to materials and equipment for infrastructure projects this issue will remain a weakness and challenge229

xLimitations in Technical Knowledge for Renewable Energy Projects ndash Across certain market participants and sectors Ghana faces a lack of technical capacity and specific knowledge of renewable energy technology and associated project risks Local financial institutions have limited in-house capacity to assess the risk of such projects and limited knowledge of the different renewable energy technologies This will likely result in poorly structured transactions and in financing terms that do not fully match project requirements In addition the high upfront capital expenditure associated with renewable energy projects is difficult to overcome if the right types of sovereign financing alternatives are not made available in the market This challenge is compounded by the lack of capacity amongst stakeholders to understand the longer-term benefits of renewable energy projects The


low number of successful demonstration projects in Ghana has not helped to build the case and has most likely also played some role in the slow transition that is observed


Based on the market challenges and dynamics the existing policy and regulatory initiatives and the suite of potential interventions needed the energy sector in Ghana is considered a strong candidate for a green finance facility and a national climate change fund The following list offers some potential market interventions to consider in the context of a deeper market analysis and concept development

xConcessional Capital and Extended Tenor ndash In terms of financial products concessional capital or blended finance structures that pool public and private funds could address the high cost of capital issue The tenor of the underlying capital support is crucial and should target a term of greater than eight years accompanied with flexible terms

xChanges in Co-financing Requirements ndash Although there are likely good intentions and a strong rationale for requiring co-financing given the difficulties of accessing local financing and in the current risk environment this type of donor eligibility criteria will either have to be 1) relaxed to some degree 2) converted to a requirement that is staggered over time (potentially tied to milestones) or 3) the financing will have to be accompanied by a guarantee mechanism

xTechnical Assistance ndash Technical assistance and capacity building programs will help to establish a stronger foundational knowledge of renewable energy projects and could help to accelerate the attainment of the targets set out in the REMP These programs should be administered for a variety of stakeholders across all levels of government (ie national provincial district and administrative posts)

xProject Preparation Facility ndash Stakeholder interviews identified a need for a project preparation facility This is especially true for the smaller scale projects that are not readily deemed commercially viable Financial support with pre-feasibility and feasibility studies for

230 httpswwwghanawebcomGhanaHomePagebusinessGovernment-to-set-up-National-Development-Bank-in-2020-798857


off-grid projects in rural areas of the country could provide the necessary assistance for small private developers to overcome initial upfront costs in project design and scoping

Potential Host Institutions for the Energy Sector

Several organizations have been identified as potential host institutions or partners for a new Green Bank or NCCF These include

xx Ghana Infrastructure Investment Fundxx National Development Bank (proposed)xx ARB Apex Bankxx Ghana Investment Promotion Centre (GIPC)

xGhana Infrastructure Investment Fund ndash The Ghana Infrastructure Investment Fund has a government mandate to invest in infrastructure projects across the country It was seeded with $325 million of investment capital from the government but operates autonomously The investment vehicle can invest across asset classes ndash debt equity or mezzanine debt The GIIF was also approved by the AfDB for a $85 million credit line which includes a $400000 technical assistance facility which is to be used to target climate projects To date the organization has invested in large ticket projects but acknowledges the countryrsquos need for off-grid and mini-grid development and that there is a potential role for GIIF to play in growing this sub-sector

With the GIIF seeking to attain GCF accreditation it could serve as a potential partner or host institution Technical assistance and capacity building will be needed to support work in renewable energy projects as this has not been a core focus for the organization especially with regard to off-grid installations

xNational Development Bank ndash In 2019 Ghana announced that a new National Development Bank (NDB) would be launched in 2020 with initial funding of $250 million secured from the World Bank to start operations230 The envisioned mandate of the new bank is to ldquorefinance credit to industry and agriculture as a wholesale bank and also provide guarantee instruments to encourage universal banks to lend to these specific sectorsrdquo231 The NDB will seek to be globally rated which will facilitate access to the


global capital markets One of the main objectives for the NDB will be to provide long tenor funding at more competitive rates to ensure that the key sectors of industry and agriculture have an opportunity to expand There is anticipated overlap between the NDBrsquos mandate and the governmentrsquos 1D1F initiative

If the NDB is successfully launched even if on a delayed schedule further investigation into hwo the NDBrsquos mandate can include clean energy climate mitigation and sustainable economic growth projects should be conducted Particularly given the NDBrsquos objective of cost competitive lending combined with some form of guarantees ndash these are two areas of specific interest to potentially leverage

xARB Apex Bank ndash The ARB Apex Bank serves as a ldquominirdquo central bank for the Rural and Community Banks known as RCBs232 As such the entityrsquos main function is to provide services to RCBs including technical managerial and financial support ARB Apex Bank was formally registered in 2000 and has since then developed strong ties with the approximately 150 RCBs within the network that service rural areas across the country

ARB Apex Bank has been involved in a number of international partnerships such as the one with Oikocredit where financing was passed through ARB Apex Bank to lend to rural banks for loan disbursements Oikocredit and other organizations such as UNICEF have worked with ARB Apex Bank to promote financial inclusion and to implement development projects ndash support of rural banks is seen as critical to ensuring that credit is made available to smallholder farmers small businesses and for rural development projects

To date the only green energy project or program that the ARB Apex Bank has been engaged in was the supply of solar energy supplies for off-grid communities in Northern Ghana a program that was financed through the World Bank There has been no significant push for green financing programs that include appropriate incentives for RCBs and this is readily acknowledged as needed by ARB Apex Bank With the high-touch relationships that ARB Apex Bank and the RCBs have in the rural communities working with or through ARB Apex Bank could scale the reach

232 httpswwwarbapexbankcom

233 httpswwwmyjoyonlinecombusinesseconomygovernments-investment-attraction-initiatives-spring-up-1d1f-industrial-enterprises

of any Green Bank or NCCF especially as it relates to expanding off-grid renewable energy technology adoption

xGhana Investment Promotion Centre ndash The Ghana Investment Promotion Centre is tasked with promoting investment across sectors in the country The GIPC is part of the Office of the President and hence plays a meaningful role in how private sector can be engaged for the development of the energy sector

Agriculture as a Priority Sector (including Agro-Processing)

The agriculture sector is one of Ghanarsquos larger GDP drivers is a key employer in the country and a critical source of foreign exchange generated from exports Consequently the government has already established important policy frameworks to spur the countryrsquos agri-cultural production However agriculture and land use change generate a sizeable proportion to the countryrsquos GHG emissions and the sector is also extremely vulner-able to climate change For these reasons agriculture is highlighted as a priority sector

As the Ghanaian government continues to emphasize the importance of the countryrsquos agriculture industry there is an opportunity to build a more resilient ecosystem through climate smart agriculture Water conservation and irriga-tion have already been identified as crucial interventions for the Savannah areas of the country There is also a link between agriculture and industry The introduction of Ghanarsquos 1D1F initiative has laid the foundation for a more interconnected economy where a greater percentage of processing value will be retained domestically233 The relationship between agriculture and industry through agro-processing has been acknowledged by even the Agricultural Development Bank (ADB) In parallel to the launch of 1D1F the ADB announced that it will support farmers with the necessary financing to companies that are supplying raw materials to factories under the govern-mentrsquos 1D1F initiative

As mentioned earlier although there is no existing compo-nent of the 1D1F initiative that focuses on the integration of green technologies there is an opportunity to leverage ADBrsquos interest in the area to promote CSA practices such


as efficient irrigation which could support improved yields and farm productivity

Agro-processing as a Priority Sub-Sector

Under the umbrella of the industrial and manufacturing sector is the governmentrsquos launch of the 1D1F policy The initiative has a strong emphasis on the agro-processing industry which has received attention from agricultural focused financing institutions such as the Agricultural Development Bank In tandem with the launch of 1D1F senior management at ADB have noted that they would direct capital to support the outgrower farmers involved in the supply chain of 1D1F companies

The relationship between the industrial and agricultural sector as highlighted through 1D1F represents an op-portunity for a new program to scope a complementary component that seeks to promote and integrate improved agricultural practices into the existing framework As not-ed earlier in the report given the lack of financing made available directly to farmers and across the agricultural sector the fact that farmers now have an opportunity to be connected to a larger value chain could help to miti-gate any associated credit risk

Complications amp Opportunities in the Agricultural Sector

The agricultural sectorrsquos contribution to the Ghana econ-omy has declined over time and the issue has been exacerbated by climate variability Although the countryrsquos government has tried to support farmers with access to credit and inputs and outputs a large resource gap still exists Access to financing and to appropriate financial products represents the biggest challenge including

xx Financing needs are too small for conventional lenders or commercial banksxx Risk profile of agricultural borrowers particularly

farmers are considered too riskyxx Agriculture as a sector is perceived to generate low

returns or as unprofitablexx High interest rates and capital intensity andxx Time lapse between CSA adoption and realization of

benefit is seen as long and risky by farmers

xAccess to Finance ndash The agricultural sector is perceived to be high risk and to have low profit

234 httpstradingeconomicscomghanainterest-rate

margins Much of this stigma is driven by a lack of capacity within commercial banks to structure appropriate financing packages and by limited availability of financial products to help mitigate the risks that do exist

The challenge that develops in the ecosystem under this dynamic is that when banks do offer financing alternatives to agricultural companies or smallholder farmers the terms are unfavorable for the borrower and not financially feasible Unfriendly borrower terms have also been driven by the fact that loan size requirements are typically small and hence conventional financiers have continued to prioritize other larger and more profitable projects

Access to capital has been a major constraint in the market and has resulted in a lack of access to farming inputs including technology to mechanize processes that could improve agricultural production and improve incomes

In addition to the general market constraint of access to finance in many cases upfront capital requirements is another primary hurdle for smallholder farmers and agricultural companies to overcome Operating cash flows often do not permit for sizeable investments such as acquiring new irrigation systems and leads to low adoption of improved farming methods that could be beneficial over the longer term for the individual and the environment

xHigh Cost of Funds ndash As mentioned earlier in the report the banking sector in Ghana is shallow and there is limited capital circulating within the system to adequately support the countryrsquos economy and related financing needs Despite the countryrsquos central bank maintaining the monetary policy rate at 145234 financial institutions in Ghana have continued to lend at rates of 20+ per annum For the agriculture sector given the perceived elevated risk it is not uncommon for rates to surpass 30 per annum

xTransition Periods ndash There is ample awareness amongst government stakeholders of the negative implications that climate change has and will continue to have on the agricultural sector in Ghana Evidence of this is apparent in the policy focus of the National Climate-Smart Agriculture and Food Security Action Plan of Ghana (2016-2020)


With clear plans outlined for water resource management and efficient irrigation systems the largest missing component at this time highlights an earlier point made regarding the lack of financing available for the sector Any transition that is tied to the adoption of CSA practices will take time to yield benefits whether that be the shift to new crop varieties intercropping or moving to solar powered water pumps for irrigation Through these periods borrowers will need access to financial products that have longer tenors are innovative in nature with principal and interest payments that are flexible and that provide some form of grace period This so called lsquotransition capitalrsquo will be critical to seeing a permanent shift from the use of conventional farming techniques to methods that seek to build sector wide resiliency

Further research into the specifics of constraints that have muted the growth of the sustainable agro-processing industry is required From initial stakeholder feedback many of the same complications noted in the Agriculture as a Priority Sector section are likely applicable to agro-processing

Potential Interventions for the Agricultural Sector

xIncentives to Local Banking Sector ndash With the major constraints to the sectorrsquos sustainable growth revolving mainly around financing a critical problem to solve is how to incentivize financial institutions to lend into the sector at reasonable rates and on practical terms Credit enhancements such as guarantees may be useful in certain circumstances but this tool does not address the problem of limited liquidity in the market nor does it resolve the issue of the high borrower interest rates Thus concessional capital would be a valuable intervention to help expand the market Another aspect to be considered for any guarantee program is the ease of accessibility to guarantee protection if and when it is needed It has been noted is that banks intentionally limit their deployment of funding because the process of accessing the guarantee payment is onerous in practice Although rural banks are well positioned to direct capital to the agriculture sector given their deep relationships within rural communities and breadth of their footprint they have still illustrated risk averseness to agriculture lending as well

235 httpsphysorgnews2020-08-africa-food-yieldshtml

xTechnical Assistance ndash Credit enhancements and concessional capital should be coupled with technical assistance and capacity building for the banks that are underwriting the loans There have been cases cited where the benefits of reduced funding costs for the banks are not passed through to the borrower To address this rigorous monitoring of the flow of funds and lending terms should be established

xAppropriately Scaled Programs ndash The design of any new program should also take into account the fact that solutions need to be very localized in nature and may need to be implemented on a smaller scale Furthermore the critical importance of structuring financing so that they are accommodative for transition periods is key Criticisms of certain development programs have come to the fore as lackluster results have only led to farmers becoming overindebted with limited improvements in terms of productivity and incomes235

xAgro-processing Sub-sector Integration with Renewable Energy ndash Under the existing design of 1D1F there is no stated goal or plan to integrate renewable energy with climate smart agriculture Hence any catalytic financing program that is designed should focus on identifying specific channels for development and partners to determine the best mode for integration of these two sectors

xAgro-processing Sub-sector Concessional Financing ndash As a preliminary step a recommended intervention is to work with ADB to design a pilot program that provides concessionary financing to farmers to incentivize them to adopt CSA practices Given the numerous studies that have been conducted and that highlight the positive impacts of CSA on farm production there are likely three benefits that could come out of such a pilot (i) outgrower farmers could improve their agricultural production to feed into 1D1F agro-processing companies thus increasing farmer incomes (ii) farmers that are currently not contract farmers may be able to increase production to the point where they can graduate and become a part of a larger value chain and (iii) promotion of CSA practices will support the growth of the agricultural sector in an environmentally sustainable way whilst also supporting the countryrsquos ambitions of increasing revenues from


agricultural exports A related option would be to work through ARB Apex Bank to design a renewable energy financing program for factories that are developed in rural districts of the country This could encourage factories to be established in more remote locations that are not connected to the grid

xAgro-processing Sub-sector Demonstration projects ndash Work with organizations such as ADB and ARB Apex Bank to design the initial demonstration projects that can promote renewable energy and CSA In addition because of the intersection between industry agriculture and energy it is recommended that engagement with representatives from the Ministry of Trade and Industry Ministry for Local Government and Rural Development and GIPC all be included in dialogues to design appropriate programs

Potential Host Institutions for Climate Smart Agriculture

As noted earlier there are capacity gaps across stake-holders in the agriculture sector especially as it relates to CSA practices and finance modalities The two existing organizations that potentially could serve as partners or host institutions for a Green Bank facility or NCCF are the

xx Agricultural Development Bankxx Rural Development Fundxx National Development Bank (discussed earlier)

The main contrast for these two options is the size of projects and borrowers that they finance and the fi-nancial products that they offer These differences also make the organizations complementary Although both organizations have deep local knowledge of the rural areas in Ghana an alternative to working with an existing institution is to establish a new institution The regulatory frameworks are in place to support this and hence this route should be explored as having potential merit

xAgricultural Development Bank ndash The Agricultural Development Bank (ADB) is one of the key players in the sector given its role as the largest institutional credit provider to agriculture ADB is a universal bank that offers a range of banking services across sectors but has a specific developmental focus on agriculture The Government of Ghana owns 323 of the bank From the initial research conducted the ADB does not offer any financial products that are specifically

designed to promote or finance climate smart agriculture A potential reason for this could be lack of knowledge about technologies or understanding of risks related to financing such projects However these issues could be addressed through technical assistance or capacity building program The ADB is well positioned given its existing mandate and government ownership to serve as an intermediary to direct financing to CSA practices It is also better capitalized relative to the RCBs and hence may be better positioned to expand its product offerings (in terms of its staff capacity flexibility to structure more complex deals etc)

xRural Development Fund ndash The Rural Development Fund also works closely with local financial institutions With the RDFrsquos broad mandate to provide lines of credit to participating rural FIs leveraging their existing effort and delving into their business model will be useful to inform the design of new financing mechanisms that seek to support the growth of small businesses working in the agriculture and renewable energy sectors in rural areas The RDF goes a step further in their intervention by providing participating FIs with technical assistance to provide guidance on how the participating banks could maximize their credit lines and use of guarantees offered

xNational Development Bank (proposed) ndash As discussed earlier a National Development Bank has been proposed for Ghana As this initiative takes shape it will be important to determine the ability of this institution to implement a Green Bank program and support the CSA sector as well as the continued and sustainable growth of Ghanarsquos agricultural sector

Within the agriculture sector any new Green Bank or NCCF will need in-country partnerships to be successful Although a new entity could be established given the high touch nature of relationships that are required to build trust with rural communities and farmers it is suggested that a well-designed partnership be the preferred route for implementation Both the ADB and RDF could be well suited for this role however the ADB is likely to have a more direct relationship with borrowers whereas the RDF is one step removed


III CONCLUSION


Ghana has a number of institutions both existing and currently proposed that could benefit from increased ac-cess to capital and capacity support to launch green bank programs

Despite the fact that Ghana is in a unique position relative to its continental peers with short-term excess of on-grid capacity the country is exposed to climate variability affecting the capacity of hydropower plants and anticipat-ed increases in electricity demand imply that the current lsquoexcess power capacityrsquo will be short-lived Given the anticipated impacts of climate change on Ghanarsquos energy sector and the macroeconomy more broadly the gov-ernment has a near-term opportunity to be proactive in a transition to a clean energy economy The integration of renewable energy to stabilize the supply of electricity will also support the governmentrsquos vision of building a larger domestic manufacturing sector There are numerous challenges that contribute to the slow uptake of renewable energy development in Ghana Some of the issues in the sector include 236

xx High cost of financingxx Lack of access to longer-term finance alternatives xx Lack of or insufficient incentives such as tax rebatesxx Grid connection constraints and lack of grid capacityxx Volatility of the local currency xx Technical knowledge limitations to operate and

maintain renewable energy technologies

Potential market interventions to consider for Ghanarsquos energy sector (in the context of a deeper market analysis and concept development) include concessional capital and extended tenor changes in co-financing require-ments technical assistance and a Project Preparation Facility These could be implemented at an existing institution or new institution proposed by the Ghanaian government


The agriculture sector is also a priority for green invest-ment as one of Ghanarsquos larger GDP drivers a key employ-er in the country and a critical source of foreign exchange generated from exports However agriculture and land use change generate a sizeable proportion to the coun-tryrsquos GHG emissions and the sector is extremely vulner-able to climate change Although the countryrsquos govern-ment has tried to support farmers with access to credit and inputs and outputs a large resource gap still exists Access to financing and to appropriate financial products represents the biggest challenge including



returns or as unprofitablexx High interest rates andxx Time lapse between CSA adoption and realization of



BENIN

237 httpsblogsworldbankorgopendatanew-world-bank-country-classifications-income-level-2020-2021

238 httpextwprlegs1faoorgdocspdfBen183074pdf

239 httpsdataworldbankorgindicatorSPPOPTOTLlocations=BJ

240 httpsdataworldbankorgindicatorSPPOPGROWlocations=BJ

241 httpsdataworldbankorgindicatorNYGDPMKTPKDZGlocations=BJ

242 httpswwwworldbankorgencountrybeninoverview

243 httpdocuments1worldbankorgcurateden319531556511306251pdfBenin-Financial-Sector-Review-Stability-for-a-Better-Inclusionpdf

244 IMF Staff Country Review ndash httpswwwimforgenNewsArticles20190508pr19152-benin-imf-staff-completes-program-review-mission~text=E2809CThe20medium2Dterm20outlook20continuesis20expected20to20remain20contained

245 httpsdataworldbankorgindicatorEGELCACCSZScontextual=regionampend=2018amplocations=BJampstart=2018ampview=bar


247 httpdocuments1worldbankorgcurateden891701570046002579pdfBenin-Increased-Access-to-Modern-Energy-Projectpdf


249 httpswwwinsae-bjorgstatistiquesindicateurs-recents59-benin-taux-d-inflation_ftn1


251 httpswwwbceaointencontentmain-indicators-and-interest-rates

252 African Development Bank Benin Economic Outlook ndash httpswwwafdborgencountries-west-africa-beninbenin-economic-outlook~text=Economic20growth20in20Benin20remains201620to202962520in202019amptext=The20fiscal20deficit2C20financed20through252520of20GDP20in202019

253 httpswwwimforg~mediaFilesPublicationsCR20191BENEA2019003ashx

I COUNTRY OVERVIEW

Benin is categorized as a lower-middle income coun-try according to the World Bankrsquos country classification methodology237 The country aims to achieve sustainable and inclusive growth through a multi-pronged develop-ment strategy as outlined in its National Development Plan 2018ndash2025 and its Government Action Plan (PAG) 2016ndash2021 which focuses on the development of agro-industrial tourism and services sectors238 Beninrsquos population stood at around 118 million in 2019 with an annual population growth rate of 27239 240

Although Benin is one of the smallest economies in West Africa in terms of population and overall GDP the country has experienced robust growth over the past few years at an average of 5 GDP growthyear between 2014 and 2019241 The primary drivers of Beninrsquos growth included increased trade activity and strong agricultural output especially from cotton and other export crops such as pineapple and cashew242 The agricultural sector employs nearly 50 of the countryrsquos labor force243 The IMF pro-jected that economic growth in Benin would rise to 67 in 2020 and 66 in 2021 but that forecast does not account for the effects of the COVID 19 pandemic244

Beninrsquos economy is highly exposed to both energy and trade risks The country imports all of its oil products as well as 50 of its electricity needs245 As a result

fluctuations in prices for oil electricity or currency ex-change rates pose risks to Beninrsquos economic growth Benin also faces an additional risk due to significant dependence on neighboring Nigeria for trade and energy supply Trade with Nigeria represents 20 of Beninrsquos GDP meaning that changes in Nigeriarsquos oil-driven economy have the potential to cause outsized impacts on Benin246 From an energy perspective levels of imported electricity from Nigeria have reached highs of 42 (2010)247

Beninrsquos monetary and fiscal indicators have remained stable over the past few years As one of the eight coun-tries in the West African Economic and Monetary Union (WAEMU) Beninrsquos currency is the CFA Franc which is pegged to the Euro with full convertibility248 The Central Bank of West African States (BCEAO) manages the CFA Franc and has maintained a stable monetary policy envi-ronment over the past few years with inflation at 20 as of August 2020249 and the central bankrsquos marginal lending interest rates at 45 in 2019250 251 On the fiscal side although Benin has kept its fiscal deficit low at 25 of GDP its public debt stands at 54 of GDP in 2019 of which around 25 is denominated in foreign currency252 253 Although the IMF expresses confidence that these low fiscal deficits would gradually decrease the debt-to-GDP ratio the level of public debt may still pose large risks to Beninrsquos economy especially given the small size of Beninrsquos


GDP compared to other nations with similar levels of debt (eg Ghana)254 It is also useful to note that Beninrsquos risk of debt distress is moderate according to the latest debt sustainability analysis report by the IMF and the World Bank as of May 2020 The countryrsquos debt level also remains below the WAEMU convergence criterion which is 70 of GDP

Beninrsquos National Development Plan envisions a structur-al shift in its economy designed to attain a GDP growth rate of 10 per year by 2025255 Benin aims to achieve this goal not only through developing its human capital and improving its governance but also through building a diversified agricultural sector as well as climate-resilient urban and rural spaces256 Consequently investments to fight climate change in Benin should generally align with these national agricultural and climate-resilience goals to gain maximum support from policymakers

On the climate front Beninrsquos goals revolve around avoid-ed emissions in the transportation land use and forestry sectors According to the WRI CAIT database Beninrsquos leading emissions sources are land-use change and for-estry (1083 MT of CO2e) energy (7 MT) and the agricul-ture sector (478 MT)257 Yet Beninrsquos Nationally Determined Contribution (NDC) to the 2015 Paris Agreement reports that the country is actually currently a carbon sink on a net basis with its forests contributing to a net absorptive capacity of 354MT as of 2012258 However Beninrsquos ab-sorptive capacity is falling sharply as more land is convert-ed for agricultural use In order to achieve its stated NDC goal of avoiding 120 MT of carbon emissions between 2020ndash2030 (5Mt from its energy sector and 115MT from its agricultural sector) Benin will require significant invest-ments in renewable energy sources and in climate-smart agriculture practices

These investments may be difficult to come by as Beninrsquos banking sector is shallow and generally under-developed

254 httpswwwimforgenNewsArticles20190624pr19231-benin-imf-executive-board-concludes-2019-article-iv-consultation



257 httpcaitwriorgprofileBenin

258 httpswww4unfcccintsitesndcstagingPublishedDocumentsBenin20FirstCDN_BENIN_VERSION_ANGLAISEpdf





263 httpswwwbceaointsitesdefaultfiles2020-03CONDITIONS20DE20BANQUE20DECEMBRE202019pdf

264 BOAD interview June 15 2020

265 httpsdataworldbankorgindicatorFDASTPRVTGDZSlocations=BJ

in addition to going through a difficult period that has seen low profitability and high levels of Non-Performing Loans (NPLs) The World Bank reports that Beninrsquos NPL ratio stands at 203 as of 2018 which is one of the highest in the WAEMU countries259 Beninrsquos banks also have low resilience to financial shocks as their capital adequa-cy ratio is 86 ndash barely above the minimum WAEMU standard of 8 ndash and their return on assets and return on equity ratios are the lowest in the WAEMU group260 Finally Beninrsquos banks have high exposure to the national debt with government bonds representing around 45 of the banking systemrsquos assets in 2015261 Due to govern-ment bonds offering a 6 interest rate Beninese banks can use these bonds as collateral to borrow from the Central Bank of West African States (BCEAO) at rates as low as 25262 In comparison the interest rates charged on private sector projects range from 8 ndash 15 (ac-cording to the BCEAO) reflecting a higher risk premium especially for projects or companies in renewable energy or climate-smart agriculture263 264 Hence banks are likely see the risk return tradeoff of holding government securi-ties as more favorable It is also important to highlight that interest rates are also capped across WAEMU member countries

According to the World Bank the domestic credit flow from banks to the private sector stood at only 17 of GDP in 2019 with Benin ranking 20th out of 32 African countries surveyed 265 The low profitability low resilience and low appetite for private projects all present high barriers for Beninrsquos banks to invest in climate change and clean energy-related projects

Other than banks Benin has access to the regional stock exchange and international financial flows The Bourse Regional des Valeurs Mobilieres (BRVM) ndash a combined stock exchange for West Africa ndash has a $14 billion market capitalization In addition the World Bank designed a pol-icy-based guarantee for Benin that covered international


lenders in the case of debt default starting in 2018 This guarantee used World Bank funds to help secure a $300 million commercial loan from the Japanese bank MUFG266 Furthermore Benin recently raised $1 billion Eurobond in January 2021267 Nevertheless neither solution addresses Beninrsquos challenges in its domestic financing capacity

Beyond Beninrsquos inclusion in the BRVM the country also has access to international capital through the issuance of Eurobonds which in 2018 mitigated the countryrsquos liquidity issues The countryrsquos membership in the WAEMU also has facilitated a relatively more stable exchange rate environment Benin raised a sovereign Eurobond of 500 million Euros in March 2019 and this issuance was used to restructure domestic debt Similarly Benin has just (beginning 2021) issued a new Eurobond of 1 billion Euro to refinance part of the first issue and to provide funding for new investments

Energy Context

Biomass and oil provide most of the primary energy re-quired in Beninrsquos economy According to the IEA biomass and waste products represented 54 of Beninrsquos primary energy mix in 2017 mainly in the form of firewood or char-coal for cooking lighting and heating purposes268 269 Oil represented 43 of Beninrsquos primary energy supply mostly in the form of transportation fuels and electric generation fueled by oil270 271 Coal and natural gas make up most of the remaining 3 of total primary energy supply while re-newables barely register in the primary energy mix272 The outsized role of biomass in Beninrsquos energy mix reflects that most of the populationrsquos heating cooking and lighting needs are met by direct burning of wood fuel and other

266 httpswwwworldbankorgenresults20190516guaranteeing-success-in-benin

267 Avec son eurobond de un milliard drsquoeuros le Beacutenin lance la saison financiegravere 2021 ndash Jeune Afrique httpswwwjeuneafriquecom1104967economiebenin-romuald-wadagni-boucle-un-eurobond-dun-milliard-deuros

268 httpswwwieaorgcountriesBenin

269 httpswwwieaorgdata-and-statisticsdata-tablescountry=BENIN

270 httpswwwieaorgdata-and-statisticscountry=BENINampfuel=Energy20supplyampindicator=Total20primary20energy20supply20(TPES)20by20source




274 httpsdataworldbankorgindicatorEGELCACCSURZSlocations=BJ


276 httpswwwieaorgdata-and-statisticsdata-tablescountry=BENINampenergy=Balancesampyear=2017

277 Comparative Analysis of Electricity Tariffs in ECOWAS ndash African Development Bank ndash ERARA ( 2019) httpsafrica-energy-portalorgreportscomparative-analysis-electricity-tariffs-ecowas-member-countries Comparative

278 httpswwwaprenergycomcase-studybenin

279 httpnewsacotonoucomh105465html

280 httpswwwagenceecofincomelectricite1309-69211-benin-le-gouvernement-ambitionne-l-autosuffisance-energetique-d-ici-a-2021-avec-une-puissance-installee-de-400-mw

281 httpsdatamccgovevaluationsindexphpcatalog214download1404

sources of biomass as opposed to through the use of electric power or gas

Benin faces several challenges with the provision of electricity According to the World Bank only 415 of Beninrsquos population has access to electricity as of 2018273 which translates into 67 of its urban population and only 18 of the rural population274 275 Beninrsquos electricity generation is dominated by oil which is imported More recently natural gas (also imported) has been providing some generation capacity into Beninrsquos electricity mix This reliance on costly foreign fossil fuels exposes the country to fluctuations in commodity prices276

Benin had an installed capacity of 227MW in 2017 but many of its power plants are aging and sometimes inop-erable which significantly lowers the amount of electricity that Benin can actually produce 277 278 This situation of unreliable generation capacity was somewhat mitigat-ed in the past few years as Benin signed a contract in 2018 between its national utility and the Finnish company Wartsila to rehabilitate its power plants at Porto-Novo Parakou and Natitingou279 Nevertheless during times of peak demand Benin requires 240MW of generation which exceeds its current capacity280 Coupled with severe transmission and distribution losses ranging from 20ndash24 of electricity generation Benin cannot meet its current electricity demand using domestic capacity alone much less satisfy projected future demand from population and economic growth281 As a result Benin relies significantly on electricity imports from neighboring countries includ-ing Nigeria Ghana and Cote drsquoIvoire According to the IEA imports constituted around 77 of Beninrsquos electricity


supply (before accounting for losses) in 2017282 However the high cost of imports combined with Beninrsquos unreliable generation capacity have necessitated rolling blackouts that affect the countryrsquos economic performance and social stability283

In response to its current energy challenges Benin has set multiple targets to address both electricity access and electricity generation diversification According to Beninrsquos Task Force on the Vision of the Electric Energy Sector (Groupe de Reflexion sur la Vision du Secteur de lrsquoEnergie Electrique ndash GRVSE) the country aims to achieve 95 ur-ban electrification and 65 rural electrification by 2025284 Benin plans to meet this increase in electrification in part through the development of renewables According to the Renewable Energy and Energy Efficiency Partnership (REEEP) Benin has sufficient irradiation potential for large-scale solar energy implementation as well as for wind energy deployment and both large and small-scale hydro285 286 287

Beninrsquos 2015 National Action Plan for Renewable Energy (Plan drsquoAction National des Energies Renouvelables ndash PANER) set goals of 247 and 351 of renewable en-ergy penetration in the electricity mix by 2020 and 2030 respectively compared to current penetration of 2288 289 However the 2020 goal has not been met and significant new investment will be required to meet the 2030 re-newable and electrification goals To attain these targets the Ministry of Energy announced two goals of achieving 400MW of total installed capacity and producing 100

282 httpswwwieaorgdata-and-statisticsdata-tablescountry=BENINampenergy=Electricityampyear=2017

283 httpswwwafdborgfileadminuploadsafdbDocumentsProject-and-OperationsBenin-_AR-Energy_Sector_Budget_Support_Programme_-_Phase_I__PASEBE_I_pdf

284 httpwwwecowrexorgsystemfilesrepository2008_groupe_reflexion_vision_secteur_electrique_grvse_-_min_enerpdf

285 httpswedocsuneporgbitstreamhandle205001182220483Energy_profile_Beninpdfsequence=1ampisAllowed=y~text=The20documented20solar20energy20potentialmC2B220(REEEP2C202012)amptext=By2020122C20access20to20electricityTable20320and20Figure204)

286 Feasibility study and action plan for the manufacturing of components for small-scale wind turbines in Benin ndash httpswwwpartnersforinnovationcomwp-contentuploads201905Haalbaarheidsstudie-en-actieplan-kleine-windturbines-Beninpdf



289 httpwwwse4allecreeeorgsitesdefaultfilespaner_editing_final_pdf




293 httpswwwsikafinancecommarchestogobenin-vers-une-relance-du-barrage-hydroelectrique-de-nangbeto_16398

294 httpsthediscoursecaenergywill-massive-dam-solve-togo-benins-energy-crisis

295 httpextwprlegs1faoorgdocspdfBEN161725pdf

296 httpsenergiegouvbjpagemissions-et-attributions-du-ministere-de-lenergie

297 httpsarebj

of its electricity demand domestically by 2021290 Benin has a strong focus on increased development of hydro generation resources (both small and large) due to the large untapped hydro potential in the country According to REEEP Benin has a commercially viable hydropower potential of 760MW on the River Oueme291 In addition Benin has over 80 potential sites suitable for delivering mini-hydro based rural electrification solutions292 Current hydro projects include the rehabilitation of the 65MW Nangbeacuteto dam which is funded by the German develop-ment bank KfW and slated to be completed by 2022293 Although Benin and Togo were supposed to jointly support the construction of the 147MW Adjarala dam on the Mono River the project has stalled since 2017 due to financing issues294 In any case both projects would ide-ally be integrated into the grid in accordance with Beninrsquos Integrated Water Resource Management strategy (Gestion Inteacutegreacutee des Ressources en Eau) which calls for a decen-tralized and trans-sectoral management of these dams295

Multiple institutions contribute to the policymaking pro-cess for Beninrsquos energy and power sectors

xx The Ministry of Energy is the main policymaking body on energy issues296 xx On the regulatory side the Electricity Regulation

Authority (Autoriteacute de Regulation de lrsquoElectriciteacute ndash ARE) ndash an independent regulator under the authority of the President ndash sets tariff structures and rates297 xx The Rural Electrification Agency (Agence Beacuteninoise

drsquoElectrification Rurale et de Maicirctrise drsquoEacutenergie ndash ABERME) is responsible for overseeing plans to


increase rural energy supply 298 ABERME is also responsible for carrying out the Rural Electrification Policy Established in 2006 this policy had a goal of electrifying 150 rural communities per year until 2015299 xx The Fonds drsquoElectrification Rurale (Rural Electrification

Fund ndash managed by ABERME) was set up to help the government of Benin attain is rural electrification goals This fund draws money from both the state and international donors (including the African Development Bank through Projet drsquoeacutelectrification rurale) to engage in grid extension as well as off-grid rural electrification solutions300 301

xx LrsquoAssociation Interprofessionnelle des speacutecialistes des Energies Renouvelables du Benin (AISER Benin) is a trade association that represents the interests of the renewable energy sector in the country 302

xx The Socieacutete Beninoise drsquoEnergie Electrique (SBEE) and the Communaute Electrique de Benin (CEB) are the two most relevant players in Beninrsquos power sector The SBEE is a state-owned utility with a de facto monopoly over Beninrsquos generation and distribution systems while the CEB is a utility jointly-owned by Benin and Togo that operates the transmission lines between the two countries and imports electricity from other countries such as Ghana and Nigeria303

The Beninese parliament adopted a new law in 2020 that allowed independent power producers to sell into the grid thus ending SBEErsquos monopoly (at least on paper)304 In an effort to improve SBEErsquos performance the Beninese government has assigned various performance indicators (eg reducing distribution losses time to get connected to the grid etc) on the company The government has also placed the company under the management of a private Canadian firm Manitoba Hydro International in order to help restructure SBEE to achieve its performance

298 httpswwwabermebj

299 httpsevaluationgouvbjuploads17pdf

300 httparebjwp-contentuploads201709DeCC81cret-nC2B0-2008-719-du-22-deCC81cembre-2008-portant-constitution-et-modaliteCC81s-de-fonctionnement-et-de-gestion-Fonds-dElectrification-Rurale-FERpdf

301 httpsenergycentralcomcecunderstanding-beninE28099s-rural-electrification-policy

302 httpswwwgoafricaonlinecombj292834-aiser-benin-associations-professionnelles-cotonou

303 httpswwwcebnetorgceb-en-brefmissions

304 httpswwwagenceecofincomelectricite0502-73548-benin-le-parlement-adopte-une-nouvelle-loi-qui-liberalise-la-production-et-la-distribution-de-l-electricite

305 httpswww24haubenininfoA-fin-2021-le-Benin-sera-completement-autonome-en-matiere-energetique

306 httpslanationbenininfoconseil-des-ministres-16-milliards-de-subvention-pour-lelectricite-a-moindre-cout

307 httpswwwenergymixreportcombenin-to-increase-electricity-tariff-by-5-in-2020-and-10-in-2021


309 httpswwwmccgovwhere-we-workprogrambenin-power-compact

310 httpssnvorgupdatemini-grids-and-stand-alone-pv-systems-serve-millions-benin-quest-universal-electricity-access

goals305 However SBEE is still in a challenging financial situation Studies by the Millennium Challenge Account ndash a joint initiative by the US government and the Millennium Challenge Corporation ndash have concluded that electricity tariffs are still too low for SBEE to attain financial sustain-ability As neither SBEE nor private developers can recoup their costs they do not have incentives to meaningfully develop new generation capacity306 Thus the government of Benin is allowing SBEE to raise its tariffs by 5 in 2020 and 10 in 2021 while at the same time extending subsi-dies worth 16 billion CFA Francs to mitigate the effects of higher electricity prices307 308

Beninrsquos efforts to increase renewable energy gener-ation are centered around the Millennium Challenge AccountndashBenin II (MCA-Benin II) A major component of this initiative is the $375 million grant-based Benin Power Compact signed in June 2017 which aims to strengthen the national utility attract private sector investment and fund infrastructure investments in electricity distribution as well as off-grid electrification309 The bulk of these funds ($253 million) are being used to modernize Beninrsquos elec-tricity distribution infrastructure which is critical to improv-ing quality of service and allowing for further penetration of renewables

The second largest component of the MCC Power Compact ($44 million in grants) is directed toward the off-grid sector in Benin which is crucial to achieving the countryrsquos rural electricity access goals According to a study by the SNV Netherlands Development Organization 10 to 50 of the population would require decentralized solar PV systems in order to achieve universal affordable electricity by 2030310 To support this off-grid buildout the MCC Power Compact will fund the creation of a stronger policy framework and sector master plan including a process for land concessions for serving off-grid areas


This program also included creation of the ldquoOff-Grid Clean Energy Facilityrdquo (OCEF) which offers partial grants to private developers or rural energy systems OCEF is structured as a ldquoresults-based fundrdquo where in addition to a minimum 25 co-financing requirement beneficiaries receive staged portions of grants upon reaching pre-de-termined milestones311 Eligible projects include off-grid energy to support public infrastructure SHS mini-grids or energy efficiency measures In July 2020 OCEF an-nounced that it had completed its second and final round of funding providing $279 million in grant support to 11 projects totaling $695 million in aggregate value312 Projects supported include Mionwa SA which will build 40 off-grid solar power plants to provide 84000 Beninese with access to electricity313

Despite this success in mobilizing grant resources to projects many projects still struggle to raise financing from commercial sources for the remainder of their project capital needs Even with the existence of green credit lines to local commercial banks and general interest from DFIs and other financiers investment remains challenged Many financiers view projects as overly risky and also lack the expertise or incentives to make investments in the off-grid power sector314 The constraints of COVID 19 have made the situation worse with at least one developer par-ticipating in the OCEF program reporting that its contract-ed loan with a local bank was cancelled due to COVID 19

Benin also benefits from the SUNREF program A green credit line developed by the French Development Agency (AFD) the SUNREF program has operations in 30 coun-tries that have allocated over 25 billion EUR of loans through local financial intermediaries (eg commercial banks) to companies dedicated to energy management sustainable natural resource development and environ-mental protection315 One of SUNREFrsquos projects in Benin is a 30000 EUR credit to a local poultry farm owned by PA Conseils in order to finance a solar rooftop power station316 Nevertheless the SUNREF program has faced

311 httpswwwnirascomdevelopment-consultingprojectsoff-grid-clean-energy-facility-ocef-in-benin

312 httpsocefbjimagesPress-release-Final-Results-of-OCEF-Second-Call-for-Proposalspdf

313 httpssolarquartercom20200629sunkofa-and-powergen-awarded-40-mini-grids-on-the-benin-mini-grid-call-for-proposals

314 Stakeholder interviews

315 httpswwwsunreforgenaboutafds-green-finance-label

316 httpswwwsunreforgenprojetun-mini-reseau-solaire-pour-lelectrification-dune-ferme-avicole-au-benin

317 Orabank interview June 12 2020

318 httpsafrica-energy-portalorgnewsbenin-approves-four-pv-projects-totaling-50-mw~text=The20four20solar20power20plantsnorthern20part20of20the20country

319 httpscatalogdatagovdatasetbenin-power-sector-policy-and-insititutional-reform


challenges in expanding its program to more beneficiaries because loan pricing at the project level is often con-sidered too expensive Local financial intermediaries are hesitant to extend loans to projects that cannot demon-strate cash flow sustainability which is complicated by the apparent lack of demand for off-grid solutions317

As part of the MCCrsquos Power Compact the MCC is ded-icating $12 million to on-grid renewable power genera-tion This MCC funding is being used to increase Beninrsquos domestic generation capacity through an Independent Power Producer transaction composed of four solar proj-ects totaling approximately 50 megawatts (AC) Technical and financial evaluations of the first round of bids are currently underway The MCC funds are not designed to fund the entire capital needs of these projects and ad-ditional matching financing is also required Due to the first-of-kind nature of these projects under the IPP frame-work it is unclear if securing financing for these projects will be straightforward or if additional credit support or patient capital may be required This first round of 50MW if financed and built should pave the way for follow-on projects under the same IPP framework which will not have the benefit of the $12 million in MCC support and will benefit from financing support318

Additionally the MCC Energy Compact has $25 mil-lion dedicated to Policy Reform and Institutional Strengthening The policy reform project aims to improve governance in the regulatory environment to help attract more independent power producers into Beninrsquos grid The management of SBEE under Manitoba Hydropower International is one such governance reform Other re-forms include319

xx Updating tariff schedules by December 2019 to avoid the government of Benin forfeiting $80 million of further financing from the MCC to improve distribution infrastructure 320


xx Increasing energy efficiency by funding energy efficiency laboratories and developing product labeling programs andxx Strengthening the policy and institutional framework

for independent power producers by reviewing and updating energy codes finalizing concessions and PPAs and designing a competitive IPP solicitation process

These policy reform efforts are critical to facilitating more deployment of independent on-grid and off-grid projects as an important challenge cited by developers is the lack of a clear regulatory environment in the off-grid space321 Although the regulatory and planning interventions from the MCC Power Compact have made progress in increas-ing regulatory certainty additional and sustained efforts are still required to realize a stronger investment environ-ment for projects in the near future

Grant support from MCC and others is helping pilot proj-ects and new business models move forward Within this context additional financing from green facilities can serve as a vital way to complement grants move the market from pilots to commercial scale replication and to reach the large investment targets set by the Government of Benin

Climate-Smart Agriculture Context

While agriculture is a major driver of Beninrsquos economy the sector is still struggling to meet the food security needs of its growing population particularly in the face of highly variable weather and changes in climate322 Benin has eight agro-ecological regions each with their own pri-orities for agriculture ranging from prime cotton growing areas to marine areas for fishing323 Beninrsquos major agricul-tural products include cotton cattle maize cashew and pineapples with cotton representing 70 of the countryrsquos export earnings324 Agricultural cultivation is dominated by smallholder farms and is characterized by a lack of wide-spread possession of land titles 325 326 Without land titles these smallholder farmers are often reluctant or unable to

321 Renewable Energy Association interview June 22 2020

322 httpwwwfaoorg3CA1323ENca1323enpdf

323 httpswwwchangementsclimatiquesbjactualiteszones-agro-ecologiques-de-la-republique-du-beninhtml


325 httpswwwtandfonlinecomdoifull1010802331193220181488339



328 httprevealingbenincomenagenciesagriculture


make the necessary investments in irrigation and other on-farm machinery and have limited collateral to seek financing even for modest farm improvements As a result less than 07 of arable land is currently irrigated mean-ing significant amounts of Beninrsquos crops are reliant on rainfall and are vulnerable to drought327 Coupled with the low competitiveness (and lack of foreign exchange poten-tial) of crops other than cotton Beninrsquos agricultural sector and economy in general faces high risks due to lack of diversification

The primary policymakers in the climate-smart agricul-ture and forestry sectors are the Ministry of Agriculture Livestock and Fisheries and the Ministry of the Living Environment and Sustainable Development The Office for the Study and Support of the Agricultural Sector also participates in the policymaking process as a representa-tive of the Beninese presidency328 According to Beninrsquos National Adaptation Programme of Action (NAPA) the government has identified priority areas towards increas-ing the resilience of its agricultural sector including climate information and early warning systems for food security promotion of renewable energy use of surface water for climate change adaptation and specifically identified activitiespractices such as integrated watershed management agroforestry and improved irrigation water management329 Similar policies have been rolled out to support the forestry sector such as the National Forest Policy that seeks to improve the conservation and man-agement of forests with the participation of local commu-nities as well as the Environmental Action Plan (EAP) that focuses on changing behavior and better management of natural resources

Beninrsquos guiding policy for agriculture is its Strategic Development Plan for Agriculture 2025 (Plan Strateacutegique de Deacuteveloppement du Secteur Agricole ndash PSDSA) along with the accompanying National Plan for Agricultural Investment and Nutritional and Food Security 2017ndash2021 (Plan National drsquoInvestissements Agricoles et de Seacutecuriteacute Alimentaire et Nutritionnelle ndash PNIASAN) The PSDSA has


three objectives including strengthening growth in the ag-ricultural sector to ensure food security maintaining com-petitiveness in its agricultural products and reinforcing the resilience of smallholder farmers330 Among the strategies that the plan identifies to achieve its objectives CSA is envisioned to play a crucial role in building resilience The PNIASAN elaborates on the role of CSA by listing the priority areas for investment such as sustainable soil and aquaculture management risk management products and agricultural innovations to boost climate resilience331 Benin has received grant financing for its CSA programs from both international and national sources including funds such as the Global Environment Facility and UNDP to fund projects related to forest management agricul-tural resilience building climate information sustainable energy flood management and water management among others332 Benin has also received aid from various development partners such as Germanyrsquos GIZ Francersquos AFD FAO and others333 These initiatives have helped im-prove Beninrsquos agricultural resilience as seen through the Agricultural Promotion Project (ProAgri GIZ) that helped increase the yields of cashew farmers by nearly 80 in four years334

Many promising CSA technologies have been identified through a combination of local knowledge development and international support In crop production important CSA practices identified for Benin by the FAO include the use of improved crop varieties soil mulching (use of crop residues) polyethylene films water harvesting and small-scale irrigation (drip or micro actor) and efficient sowing practices335 In the livestock sector potential CSA ap-proaches include the introduction of high-value species or crossbreeding with local animals conservation of animal feed for the dry season use of resistant varieties of fodder and seasonal livestock movement In the forestry sector CSA activities include planting local fruit trees adapted to climate as well as off-farm CSA-related practices includ-ing the use of biogas use of organic matter for domes-tic energy and the use of improved traditional stoves

330 httpstapipediaorgnode37538 ndash really good resource ndash see pages 47 to 52 after downloading the document

331 httpstapipediaorgnode37538


333 httpwwwfaoorgdocumentscardencCA1323EN




337 httpswwwclimatefinancelaborgprojectafrica-climate-smart-agriculture

338 httpsclimatepolicyinitiativeorgwp-contentuploads201910WAICSA-v16_18092019-_Finalpdf


However many of these practices require upfront invest-ment and training to be effective which present a seri-ous barrier to increased adoption Among other barriers holding back widespread adoption a report from the FAO specifically lists ldquopoor financial servicesrdquo as one of the key drivers limiting investment in CSA practices in Benin336

These financial services challenges can be addressed through development partner grant programs and innova-tive financing solutions One such pilot financing project is the West Africa Initiative for Climate-Smart Agriculture (WAICSA) developed under the Climate Finance Lab managed by the Climate Policy Initiative337 Initiated by the Commission of the Economic Community of West African States (ECOWAS) WAICSA is a facility that employs blended finance solutions specifically to support CSA practices This facility is funded by public resources from ECOWAS member countries as the first-loss tranche and supported by DFIs and private investors as the Class A mezzanine and Class A senior tranches respectively This structure is meant to provide loans at concessional rates in order to de-risk investments in CSA and accelerate progress in this sector338 These funds would be chan-neled through local banks and microfinance institutions as well as through partnerships with smallholder farm-ers339 Although WAICSA is still in its pilot phase and ex-pected to launch in early 2020 (pre COVID) in 6 countries successful implementation would mean expansion to all 15 nations in ECOWAS Another pilot project to note is a $34 million GEF program completed in 2018 that focused on CSA practices in nine villages including provision of equipment and tools to support fish farms

In May 2013 the Beninese Cabinet voted to transform the previous National Environmental Fund (FNE) into the National Fund for the Environment and Climate (FNEC) FNEC mainly targets reforestation agriculture and live-stock and is an important partner for the promotion of CSA practices FNEC achieved accreditation to the Green Climate Fund (GCF) for grants only Although a


GCF funding proposal has not yet been approved this institution could serve as an important potential source of additional grant funding for CSA in Benin340

Finally any discussion about agriculture in Benin must address the role of cotton As the largest contributor of employment and the majority of Beninrsquos foreign exchange cotton plays a crucial role in the agricultural sector341 In terms of the climate effects the actual harvesting of cotton has a low carbon footprint as low-mechanized hand-picked cotton is prized for its quality and is com-mon in Benin342 However cotton must be processed using cotton gins which also increases the value of the cotton Although these machines do not consume en-ergy in significant amounts the lack of reliability and the high prices of electricity in Benin hinder the growth of this industry343 This situation reinforces the case for integrat-ing off-grid renewables into Beninrsquos agriculture sector specifically for cotton ginning and other agro-processing Since off-grid electricity solutions are not subject to the issues facing Beninrsquos electricity grid they can provide a more reliable power source and if paired with favorable financing they could also offer relatively lower electrici-ty prices that could help further develop Beninrsquos cotton ginning capacity Although this solution does not address the political issues surrounding Beninrsquos cotton ginning sector deploying off-grid power plants could contribute greatly in helping more farmers move up the value-added chain in the cotton sector as per the countryrsquos National Development Plan


Benin has steadily become more urbanized in recent years with nearly 50 of the population now living in urban areas344 Increasing urbanization puts pressure on local services and natural systems and thus the Government of Benin has set a number of goals with a fo-cus on increased transportation connectivity and regional


341 httpswwwgreengrowthknowledgeorgcase-studieseconomics-conventional-and-organic-cotton-production-benin

342 httpsafcotorgwp-contentuploads201907West-African-Cotton-Brochure-ENGLISHpdf

343 httpcftncasitesdefaultfilesAcademicLiteraturePower20In20West20African20cotton20supply20chainspdf

344 httpsdataworldbankorgindicatorSPURBTOTLINZSlocations=BJ

345 httprevealingbenincomenagenciesliving-environment

346 httpstheconversationcomporto-novo-an-african-city-taking-action-against-climate-change-42501


348 httpswwwafdborgsitesdefaultfilesdocumentsprojects-and-operationsbenin-support_project_for_cotonou_stormwater_drainage_programme_papcpdf

349 httpswwwwsporgsiteswspfilespublicationsWSP-Benin-Innovative-Public-Private-Partnerships-Rural-Water-Servicespdf

350 httpswwwafrik21africaenbenin-afd-allocates-58-million-euros-to-improve-urban-resilience

links modernization and sanitation of strategic urban areas including to increase tourism and ecosystems ser-vices and promotion of economic activities345

One important initiative is Beninrsquos ldquoPorto Novo ndash Green Cityrdquo project Started in 2014 the plan centers on trans-forming Beninrsquos official capital (and second largest city) Porto-Novo into a sustainable city 346 This initiative covers various sectors with those relevant to green urbanization listed below347

xx Upgrading roadways ndash modernizing Beninrsquos roads to improve circulation and mobility as well as reduce cyclical floodingxx Protecting and developing the Porto Novo lagoon ndash

removing dumping grounds redeveloping the lagoon space to promote tourism and provide nature-based carbon capture servicesxx Efficiently managing household waste ndash creating a

virtuous cycle between waste organization collection and recycling all for the purpose of creating more jobs and reducing waste

These green urbanization policies are also being applied in other Beninese cities especially in the countryrsquos largest city of Cotonou Other urbanization-related policies and partnerships revolve around reducing floods improving stormwater drainage and increasing access to potable water348 349

Beninrsquos climate change program PAVICC is another im-portant policy initiative Financed by a loan from AFD and implemented by the Ministry of the Living Environment and Sustainable Development this program aims to increase support for urban planning and sustainable infrastruc-ture in the city of Cotonou especially in terms of better managing urban flooding350 Specific policies include better urban planning that takes climate risks into ac-count improved stormwater drainage infrastructure and


reinforcing city zones that are prone to flooding351 Many of these projects are public sector in nature and receive support from multilateral institutions such as the AfDB (Projet drsquoappui au Programme drsquoassainissement pluvial de Cotonou ndash PAPC) and World Bank A clear area for addi-tional research could be focused on methods to structure projects to increase the potential for private sector partic-ipation especially if they can replicate the public-private partnerships currently employed to improve water access in its rural areas352

The West Africa Coastal Areas (WACA) Management Program is also active in promoting climate change ad-aptation solutions for Beninrsquos cities Funded by a consor-tium of international development agencies that includes the World Bank the Nordic Development Fund and the Global Environment Facility the WACA program provides a platform for West African countries to boost knowledge transfer foster political dialogue and mobilize public and private finance to tackle coastal erosion flooding pollu-tion and climate change adaptation353 This platform also establishes a ldquomarketplacerdquo where the target countries and financiers can communicate about their investment priorities354 In terms of financing the program seeks to unlock funds through public private partnerships project guarantees and bonds though the choice of instrument depends on whether the project is revenue-generating or non-revenue generating355 The WACA program iden-tified five focus areas for Benin namely the development of localized strategies the maintenance of strategies for adaptation and the strengthening of legal and institu-tional capacity for managing coastal areas as well as for communication and regional collaboration The program envisions these efforts to require just over 140 million EUR of investment356 Already the WACA program has begun feasibility studies to design and build long-term coastal protection infrastructure as well as take immediate emer-gency action for areas that are the most threatened by climate change357

351 httpswwwafdfrfrcarte-des-projetsadapter-les-villes-du-benin-aux-changements-climatiques-pavicc


353 httpswwwwacaprogramorgabout-us

354 httpswwwwacaprogramorgfinance-instruments-0


356 httpswwwwacaprogramorgsiteswacafilesknowdocBENIN20MSIP4211183024_rapport_v422C20final20report20March202017_0pdf

357 httpswwwwacaprogramorgcountrybenin

358 httpswwwccacoalitionorgennewsbenin-making-progress-control-black-carbon-and-other-pollutants


Benin does not have a national strategy to promote zero-emission transport Nevertheless the Ministry of Environment has initiated a series of actions to help reduce local air pollution in Beninrsquos urban areas These efforts include setting standards for air quality and adopt-ing laws and regulations in areas ranging from air pollution levels to emissions of hydrofluorocarbons to the import of motor vehicles358 In addition the Ministry provides a program that helps monitor and repair vehicles usually free of charge These services have helped to greatly reduce the amount of black carbon emitted in Beninrsquos cities359 As Benin continues to urbanize and more people start to use personal vehicles these kinds of clean trans-portation policies must also be scaled up

II PRIORITY SECTORS FOR GREEN INVESTMENT

With Beninrsquos ambitions of expanding the economy through a focus on the energy and agriculture sectors combined with the existing enabling policies and frameworks of sup-port it is recommended that any new Green Bank financ-ing or NCCF intervention target these as priority sectors The recommendation is further supported by the fact that the countryrsquos climate objectives are also heavily linked to these two sectors

Similar to the other five countries included in the scope of this report the following criteria were utilized to identify these priority sectors

xx Sectors with significant potential to reduce CO2 emissions and have the potential to support the continued efforts of the countryrsquos progress towards meeting NDCs and SDG commitmentsxx Potential for project pipeline has been identified

through the initial market scopingxx Significant direct or indirect contributor to the countryrsquos

Gross Domestic Product (GDP) and


xx A financing gap exists within the market whereby catalytic green capital is needed or is deemed to be of great importance to make progress towards the countryrsquos NDCs and development goals


The complications of Beninrsquos energy sector make it a prime candidate for scaled adoption of renewable ener-gy The countryrsquos dependence on neighboring nations for imported oil results in the energy supply being expensive and potentially unreliable In addition the weak electricity infrastructure results in relatively high losses across trans-mission and distribution systems

Integrating a greater proportion of renewables into the energy mix could result in large energy cost reductions over the medium to long term would contribute to greater energy independence and would allow Benin to prepare for anticipated energy demand spikes while ensuring progress towards achieving climate targets

The introduction of new laws to support the opening of the energy market to the private sector creates an opportunity to for renewable energy project planning and implementation However given the financial state of the government and state-owned enterprises such as the SBEE and CEB external financial and non-financial support will be critical inputs if the country is to make any progress towards its renewable energy targets in the near term

As noted earlier Benin has attempted to construct and commission utility-scale energy projects such as the 147MW Adjarala hydro-electric dam project on the Mono River but was unsuccessful due to sovereign financing constraints In order to meet existing and anticipated en-ergy demands in Benin a focus on both utility-scale and smaller projects including mini-grids and more distributed energy systems is needed With the countryrsquos highly dis-persed population (estimated by the World Bank in 2018 as 102 peoplekm2) utility-scale projects are limited to serving highly urbanized areas like Cotonou the countryrsquos economic capital360

360 httpsdataworldbankorgindicatorENPOPDNSTlocations=BJ



363 httpsconstructionreviewonlinecom201911benin-receives-us-133m-grant-for-sanitation-and-rural-electrification

For rural areas off-grid renewable energy systems are the most suitable solution to ensure energy access as extension of the grid in the foreseeable future is unlikely due to high costs and slow implementation Beninrsquos gov-ernment acknowledged the need for an alternative plan and introduced the ldquoFonds drsquoElectrification Ruralerdquo (Rural Electrification Fund) which mainly targets rural areas ndash 1400 localities have been identified under the program Sites are assessed by size and will use a combination of micro-grids or distributed systems (eg solar kits and solar home systems) to provide electricity access361 The Government of Benin further understood that commercial viability of rural energy projects was paramount if it was to be successful in attracting private sector interest As a means of improving the financial sustainability of such projects the Off-Grid Electricity Access Policy seeks to support the development of electricity use with a comple-mentary focus on electricity for productive uses ndash ldquoeco-nomic activities such as agriculture commerce small local businesses etcrdquo362

Across the country there is ample opportunity to scale up solar wind and mini or pico-hydro projects Further research into the which technologies are most appropriate for each of the regions of the country is recommended


Complications within the energy sector range from inade-quate funding to lack of technical expertise and capacity These and other challenges involve various stakeholders from the national government to municipalities and across the spectrum of private sector actors

xUnderfunded agencies ndash ABERME is the sole government agency tasked with rural electrification but remains significantly underfunded and under resourced The SOC has been successful in supporting some electricity connection projects but has little experience with IPPs and off-grid companies In 2019 Benin received a $133 million grant from AfDB to finance two projects one of which is a rural electrification project The grant funding is expected to increase rural electricity access from 811 in 2018 to 974 in 2022363 The AfDBrsquos African Development


Fund (ADF) will finance the first sub-programs and it is anticipated that they will play a further role in mobilizing additional capital Although such projects help to lay the path for future growth as a singular project it is noted that there will still be a significant electricity supply gap ABERME will need significantly more financing and capacity building resources to successfully achieve the countryrsquos rural electrification target of 65 by 2025

xHigh Costs of Service ndash Beninrsquos dependency on imported electricity has resulted in high costs of service Yet such costs cannot be easily passed through to end-users With poverty rates still high at 464 as of 2018 affordability is an important aspect of consideration not only to facilitate accessibility but also to ensure that demand levels are high enough to support the financial sustainability of energy projects364 In many cases the lack of appetite from the private sector is due to tariff rates that are not cost reflective

As a means for closing the gap subsidies and incentives that can support greater private developer participation in the market is likely needed in the initial stages This is especially true for renewable energy projects which have high upfront capital costs With the opening of the energy sector to IPPs there is an opportunity to right size the historical energy challenges one significant change will be to develop greater in-country generation capacity through the support of IPPs

xLack of Technical Knowledge of Capacity ndash In 2019 the World Bank published their Implementation Completion and Results Report for a $70 million project that had grant support from GEF and AFREA known as the Increased Access to Modern Energy (IAME) project Its main objectives included improvement of the existing electricity infrastructure financing of new transmission lines to reduce losses in the north and rural electrification through on-grid connections IAMErsquos main institutional strengthening component targeted support of ABERME but this was dropped due to the risk presented by ABERMErsquos low capacity

In the context of rural electrification this example highlights the need for grant-funded technical assistance The technical assistance and capacity


building that is required is broad in scope from understanding how to plan assess implement and operate renewable energy projects to establishing fundamentals around the financing of such projects With the high dependency that rural areas have on ABERMErsquos ability to execute on rural electrification projects this support is deemed critical

Lack of technical knowledge and capacity is also an issue within government especially at the municipal level and within the local commercial banks

xLimited Financing Alternatives for Private Sector Developers ndash Across the spectrum of project sizes and renewable energy technologies access to finance has been identified as a major constraint Despite the fact that various IFI backed programs have been established to direct capital to privately developed projects and the creation of an improved regulatory environment for private sector participation financing alternatives both from local and international resources remain limited As a result the co-financing requirements of IFI and ODA programs are difficult to satisfy and projects are often not progressed

Local financial institutions lack the risk appetite for project finance and renewable energy projects Part of the challenge as noted earlier is the limited technical knowledge and internal capacity of local commercial banks to assess such projects

In the context of the region Beninrsquos financing costs which average 6 to 9 per annum are considered too high for renewable energy projects to achieve economic returns that make sense

Guarantees and forms of concessionary financing could help to address these aforementioned issues as it relates to financing And although the World Bankrsquos policy-guarantee program helps to improve market liquidity from international financiers a gap still exists in terms of the depth of the local capital markets

xWeak Grid Infrastructure ndash The mix of projects that will need to be developed to meet the electricity demand in Benin include on-grid and off-grid solutions However a preliminary step to installing any new generation capacity will be enhancements to the countryrsquos grid infrastructure this is especially true for any on-grid


solutions Beninrsquos grid infrastructure is outdated and limited funding has historically been channelled to maintain the transmission and distribution networks

The World Bank funded project IAME helped to resolve some of the transmission loss issue by running a new transmission line along the north-south corridor in Benin where the country imports electricity from Nigeria365 The projectrsquos other sub-components also supported rehabilitation and reinforcement of the SBEErsquos electrical distribution network in major urban centers According to the IAMErsquos project completion documents several of the targets were achieved and yielded high economic returns Despite these accomplishments it is likely that there are other areas of improvement and support that will be required by SBEE to strengthen the grid infrastructure This is especially true given the future estimates of electricity demand increases Projects similar to IAME will need to be scoped and funded by international organizations as the resources of key government stakeholders is anticipated to remain limited

xPipeline of Projects are Considered Un-bankable ndash Beninrsquos pipeline of renewable energy projects has been noted by financing stakeholders as un-bankable This has been the case in terms of feedback from international and local financing partners Perspectives from those interviewed included the fact that even with available funding the pipeline remains too weak to absorb capital and economic returns are unattractive These challenges may be due to a lack of adequate support during the pre-feasibility and feasibility stages of project design

In addition to the limited technical knowledge in the market there is also a lack of understanding by smaller developers around ongoing financial management of projects and project operations This is seen as a key risk by the financing community ndash the lack of experience in renewable energy project management is related to the potential mismanagement of project cash flows with implications to return on capital

xChallenges Accessing Climate Finance due to Lack of Technical Capacity ndash Beyond the general commercial viability of projects it has been noted by stakeholders including government agencies that there is a general lack of capacity to design green projects that meet


the standards of climate finance programs or vehicles Consequently even where a project shows promise of strong economics access to capital may be constrained because of project design This has been most pronounced at the municipal level of government where a lack of expertise on developing green projects has been a key inhibitor

xRegulatory Policies at the National and Subnational Levels of Government Are Not Clear ndash Benin has made headway in terms of developing an enabling environment to support private sector participation in the energy sector However the development of more robust policies is still needed especially related to streamlining application and permitting processes and providing more timely and comprehensive feedback to developers on tenders Stakeholders noted that the weaknesses in the existing institutional processes combined with the continuous delays associated with project reviews and approvals was a significant deterrent

Additionally clarity on grid expansion plans need to be better communicated to the market Project developers have noted that clearance and assurance regarding the grid is a critical part of their assessment of new projects and that an average of ten years assurance is likely needed although this depends on the locality


Based on the market dynamics described above existing policy and regulatory initiatives and the suite of potential interventions as outlined the energy sector in Benin is considered a strong candidate for a green finance facili-ty and a national climate change fund The following list offers some potential market interventions to consider in the context of a deeper market analysis and concept development

xProject Preparation Facilities ndash Project preparation facilities (PPFs) could help the energy sector in Benin to develop projects that will be attractive to public and private sector investors PPFs would prove most useful to support municipal projects for smaller project developers such as SME players and within certain local commercial banks


xDe-risking Mechanisms ndash De-risking mechanisms could help unlock private sector capital from local banks Government guarantees have been noted as a key mechanism to support improved credit flows from local financiers Although numerous guarantee schemes offered by organizations such as the African Guarantee Fund (AGF) FAGACE African Trade Insurance Agency (ATI) and World Bank Group there is an opportunity to develop add-on programs that specifically target the renewable energy sector and which focus on stimulating the Government of Benin to offer more public sector guarantees This could be achieved through grant funding directly channeled to the Ministry of Finance or through a second loss guarantee facility offered by an IFI or multilateral agency

xProject Size ndash It is also necessary to address the issue of project size Smaller projects are subject to the same lengthy permitting processes as larger scale projects and are less likely to be financed due to their lower return profile These challenges could be tackled through two interventions One option is to develop a one-stop-shop for permitting and licensing similar to the concept being designed by the UNDP for biomass energy This could result in shorter lead times for project development and a reduction of costs for developers The second potential intervention is to create a mechanism that bundles smaller projects together leveraging commonalities which could expedite review not only through a one-stop-shop for permitting and government approvals but also for financing considerations

xGreen Credit Lines ndash Direct funding preferably on concessionary terms to local banks or to project developers would be useful especially for smaller projects For local banks the funding should be coupled with at least partial credit guarantees if not full guarantees One model that could be piloted is a guaranteed green credit line directed to local financial institutions which integrates a project preparation facility focused on pre-development activities Although SUNREF is meant to serve as such a market mechanism several aspects of the program have proved challenging and deterred market actors from participating These challenges include (i) inflexible eligibility criteria that do not align with market needs (eg rigidity around which renewable energy

technologies are financeable or meet program criteria) (ii) pricing for the capital offered is considered too expensive by developers and (iii) despite the technical assistance being offered to the local commercial banks ndash banks are still unwilling to extend credit to borrowers because the projects are not generating adequate levels of cash flow to offset the perceived or actual project risk

As future programs are designed eligibility requirements should be discussed with stakeholders in advance to clarify approach capacity needs what types of green projects would qualify and what types of technical assistance are required

xDiversify Project Pipeline ndash To help ensure that the renewable energy mix is diversified (beyond investor interest in solar projects) consideration should be given to creating incentives and directing concessionary financing to project sponsors of hydro projects From a financing perspective given the higher significant costs associated with developing hydro projects (as compared to solar projects) reducing the cost of capital is an important aspect to consider towards stimulating credit flows from local financial institutions This should be coupled with technical assistance and capacity training given that renewable energy technology appears to be less understood by local banks

xAvoid Over-reliance on Challenge Funds ndash There is a need to address a perceived overemphasis in the market by donors on challenge funds and pay for success models Although these structures may provide for aligned incentives between stakeholders they still do not address the marketrsquos need for funding to cover upfront capital costs which smaller and local project developers have difficulty raising because of the lack of market liquidity and risk averseness of the local capital markets

Under the MCCrsquos Power Compact the MCC is dedicating $12 million to on-grid renewable power generation but the programrsquos design is not intended to provide 100 of the project funding required Given the early stage nature of the IPP framework that is being tested in the market there is a chance that the match funding needed for the short-listed projects will not be filled by commercial banks unless there is some form of guarantee Hence in terms of opportunities for a green catalytic finance facility to complement existing


active programs the MCC Power Compact is a prime candidate A Green Bank could provide concessionary finance as match funding and potentially help structure a guarantee mechanism A NCCF has a role to play as well potentially complementing the green finance with grant funding to provide capacity building within the local banks and through separate initiatives to local project developers

xLink Rural Electrification to Productive Uses of Energy ndash As mentioned earlier a multitude of programs and projects have been initiated in Benin to address the low levels of electrification across the country One area that has untapped potential is expanding the productive uses of energy to address the issues of limited livelihood options low-income levels and an inability to pay for electricity A holistic approach designed to bring income-generating off-grid energy solutions to rural areas that is integrated with viable livelihood options training technical assistance and long-term capacity building could be effective in expanding energy access Local commercial banks have highlighted this challenge noting that without a productive use component built into programs rural electrification projects will likely continue to struggle to access financing Productive use of energy is a way to provide a level of assurance to financiers that projects have bankable cash flows and to demonstrate debt serviceability


In terms of potential host institutions andor partners there are a number of government agencies and private institutions that have been identified as potential partners or host institutions including

xx Agence Cadre de Vie pour le Deacuteveloppement du Territoirexx Ecobank Beninxx Agence Beacuteninoise drsquoElectrification Rurale et de Maicirctrise

drsquoEacutenergie ndash ABERMExx National Fund for Environment and Climate (FNEC)

xAgence Cadre de Vie pour le Deacuteveloppement du Territoire ndash The Agence Cadre de Vie pour le Deacuteveloppement du Territoire (Agency for Living Environment and Sustainable Development) is



responsible for implementing and managing development projects related to the living environment regional planning building growth hubs and driving sustainable development366 The agency plays a coordination role with strategic partners through the life cycle of projects in urban development road infrastructure and waste management Furthermore it is responsible for feasibility technical financial and judicial studies as part of its pre-project development functions367 The agency is also involved in sourcing investment capital which makes it well positioned to serve as a partner for both green catalytic finance and NCCF grant funding

xEcobank Benin ndash Ecobank Benin already plays an active role in the renewable energy market in the country The bank is one of the larger banks in the market and has demonstrated knowledge of the renewable energy industry relative to its peers Given Ecobankrsquos regional footprint there is also potential that knowledge sharing and financing models can be replicated through the bankrsquos network into other parts of West Africa thus supporting the acceleration of successful structures Additionally its role in the Millennium Challenge Corporation program illustrates experience working with MLA-backed programs There is still potential for additional capacity building but the institution is one of the more progressive players in terms of financing and may potentially be a strong candidate as an intermediary for managing a green credit line program

xAgence Beacuteninoise drsquoElectrification Rurale et de Maicirctrise drsquoEacutenergie ndash ABERME plays a central role in the implementation of Beninrsquos rural electrification strategy and is involved in rural electrification policy setting Despite some of the challenges noted earlier it is recommended that the organization be integrated into any green finance facility or NCCF program development that include goals for rural electrification With ABERMErsquos depth of knowledge in rural areas and understanding of electricity demand dynamics their involvement can help launch more comprehensive programs However technical assistance capacity building and funding would be needed as a preliminary step ABERME has a long history of managing donor


funding and is one of the key actors in the market that may be most suitable for partnering or even hosting a NCCF

xNational Fund for Environment and Climate (FNEC) ndash FNECrsquos existing GCF accreditation awarded in February 2019 makes the government entity a strong potential partner for finance and grant intermediation This public institution has financial autonomy and is under the mandate of the Ministry of Living Environment and Sustainable Development Although its main mission is to support agriculture livestock and forestry from the perspective of productive uses for energy and the nexus between agriculture and energy the organization may be one of the most suitable partners within government entities in Benin

Climate Smart Agriculture as a Priority Sector

With the governmentrsquos focus on building a climate resilient agricultural sector two specific areas have been identified in the NAPA as priorities (i) the promotion and integration of renewable energy and (ii) the adoption of improved irrigation ie efficient irrigation systems Furthermore through the countryrsquos PSDSA CSA practices have already been identified as a key intervention by government ndash pro-viding further scope for a green finance facility or NCCF to complement existing national targets and goals

In terms of the nexus between agriculture and renewable energy projects such as the UNDPrsquos Building a Resilient Energy Future in Benin aim to promote the production of electricity by the gasification of agricultural waste residues (biomass) and the establishment of a main network and isolated mini-grids for electrification In addition to its fo-cus on providing government support to develop enabling policies as well as institutional and regulatory frameworks the project included components to establish a financial mechanism that sought to facilitate participation in bio-mass power generation

Cotton remains Beninrsquos largest cash crop and although the country should plan for an eventual diversification away from a dependency on cotton this is unlikely to happen in the near future In this context any focus on the cotton industry should be targeted towards identifying effi-ciencies in the gin processing of raw materials There have been limited studies conducted thus far that explores how

renewable energy could be integrated into the process but at a minimum renewable energy could provide greater continuity of electricity access to the industry which is currently plagued by down times that hurt productivity

Complications amp Opportunities in the Climate Smart Agricultural Sector

Through the various development plans that the gov-ernment of Benin has adopted to help transition the agricultural sector to a more climate resilient state the greatest current gap is the lack of financing alternatives and technical knowledge Several ODA funded programs have helped to conduct preliminary studies on suitable solutions but fall short of identifying appropriate financing mechanisms

xLack of Access to Financing and Appropriate Financial Product Alternatives ndash Agriculture as a sector requires a unique set of financial products preferably designed to be cash flow based Climate change has negatively impacted agricultural yields of farmers in Benin and given that the majority of farming is conducted by subsistence or smallholder farmers the likelihood that alternative income streams could support the covenant requirements of conventional financing is low In addition many agricultural borrowers are not deemed credit worthy and the lack of land ownership in the country makes it even more difficult for potential borrowers to qualify for conventional loans as they lack access to hard collateral that would otherwise compensate for the perceived increased risk of lending in the sector

The process of transitioning to CSA practices requires relatively high amounts of upfront capital Cash flows from existing farming practices are unlikely to be adequate to absorb such costs through funds from operations Consequently alternative finance products that are patient enough to absorb any volatility of cash flows during the transition period are needed as well as those products that can provide flexible financing terms in order to avoid creating a cycle of indebtedness for the farmer or agricultural business

xLimited Technical Knowledge ndash Within the agriculture sector there is still limited technical knowledge of climate smart agriculture practices Although there have been programs that have supported readiness and capacity building such as the GCF program


these have been designed to specifically improve the capacity of the Directorate General of Climate Change Management of the Ministry of Environment not the end-users of the technologies Furthermore programs are arguably too limited in terms of time horizon and should be designed to cover longer durations to limit dis-adoption

Potential Interventions for the Climate Smart Agricultural Sector

With the number of existing and recently completed ODA programs that target CSA and solutions addressing the intersection between agriculture and renewable energy Benin has developed some of the critical foundations from which more scalable projects could be launched Benin has been successful in laying some of the initial ground-work for sourcing funding to support CSA goals One area of development is the potential to access and utilize inter-national climate finance from sources such as the GCF for readiness and capacity building programs Although these early steps likely helped develop both a strong foundation-al basis from which to scale and an understanding around how CSA can be better integrated to improve productivity and yield there still exists a gap on actual financing of projects

xBiomass Energy ndash In terms of biomass energy the UNDP has helped establish a one-stop-shop for issuance of the various administrative authorizations necessary for renewable energy power plant projects and facilitated the development of a biomass energy trading market This type of financing mechanism seems to have helped monetize biomass energy supply Biomass energy has the potential to serve as an alternative off-grid energy source for rural areas and is considered a viable renewable energy solution for the existing level of agricultural activity and waste produced In addition biomass energy can also contribute to a reduction in GHG emissions

xConcessionary Finance and Guarantees ndash Interventions identified for the agricultural sector include concessionary financing and guarantees Lowering the cost of financing and improving bank liquidity have been noted as two areas where greater support could potentially improve the flow of credit to the agricultural sector Guarantees have been noted as important to help de-risk lending to the sector given the smaller project sizes and volatility of cash flows

from farming operations While the cotton industry has been noted as well organized potentially reducing banksrsquo perceived risks of this sub-sector there is less appetite for financing other agriculture projects

Given the nascency of CSA practice adoption guarantees or other forms of risk mitigation could help immensely As noted earlier many of the international donor interventions have been specifically targeted at policy development institutional framework strengthening building technical knowledge and conducting studies to determine the most appropriate solutions for the country There is a still work to be done on defining financing mechanisms that could open up the sector more from a local financing perspective

xProject Aggregation ndash Similar to the energy sector the agricultural sector could also benefit from an aggregation mechanism or a centralized repository of bankable projects In addition there is a lack of information flow within the country which may be contributing to the low number of projects being financed With greater information flow successful models in one part of the country could be more easily replicated ndash sector wide coordination is considered paramount

Potential Host Institutions for the Agricultural Sector

Several government agencies and private sector organi-zations have been identified as potential partners or host institutions The following entities are considered to be positioned to help the agriculture sector scale sustainable solutions

xx National Fund for Environment and Climate (FNEC)xx Coris Bank

xNational Fund for Environment and Climate (FNEC) ndash The National Fund for Environment and Climate (FNEC) has been identified as a well-positioned agency within the country through which climate finance could be directed to promote and fund CSA-related activities With FNECrsquos existing GCF accreditation to receive grants a next step could be to determine whether the organization could qualify for GCF financing as well There may be potential to scope a program that assists FNEC to move in this direction through readiness and capacity building programs


xCoris Bank ndash Among private sector institutions Coris Bank is a potential partner given its active role in working with agricultural SMEs The bank recently established a credit line of 500 million CFA with the International Fund for Agricultural Development The bank also has expertise in solar project financing and could hence serve as an intermediary for both agriculture and renewable energy directed capital

III CONCLUSION

Based on a high-level view of market dynamics existing policy and regulatory initiatives and the suite of poten-tial interventions identified the energy sector in Benin is considered a strong candidate for a potential Green Bank and a National Climate Change Fund In terms of the energy sector the countryrsquos dependence on neighboring nations for imported oil results in the energy supply being expensive and potentially unreliable In addition the weak electricity infrastructure results in relatively high losses across transmission and distribution systems Integrating a greater proportion of renewables into the energy mix could result in large energy cost reductions over the medium to long term would contribute to greater energy independence and would allow Benin to prepare for an-ticipated energy demand spikes while ensuring progress towards achieving climate targets A Green BankNCCF initiative would be well positioned to address energy sec-tor challenges ranging from inadequate funding to lack of technical expertise and capacity

Beninrsquos agriculture sector also surfaces as having signif-icant potential for leveraged investment With the gov-ernmentrsquos focus on building a climate resilient agricultural sector two specific areas have been identified in the NAPA as priorities (i) the promotion and integration of renewable energy and (ii) the adoption of improved irriga-tion ie efficient irrigation systems Furthermore through the countryrsquos PSDSA CSA practices have already been identified as a key intervention by government ndash providing further scope for a green finance facility or NCCF to com-plement existing national targets and goals Through the various development plans that the government of Benin has adopted to help transition the agricultural sector to a more climate resilient state the greatest current gap is the lack of financing alternatives and technical knowledge Several ODA funded programs have helped to conduct preliminary studies on suitable solutions but fall short of identifying appropriate financing mechanisms

The government has established a number of policies frameworks and rolled out incentives to provide for an enabling environment Some of the key constraints that a Green Bank and NCCF could assist to alleviate include

xx Injection of concessional capital to reduce the cost of funding and risk exposure for local banksxx Provision of technical assistance and capacity building





TUNISIA

368 httpsdataworldbankorgindicatorNYGDPPCAPCDcontextual=regionampend=2019amplocations=TNampstart=2019ampview=bar

369 httpsdataworldbankorgindicatorNYGDPMKTPKDZGlocations=TN

370 httpssantandertradecomenportalanalyse-marketstunisiaeconomic-political-outline

371 httpsenglishaawsatcomhomearticle1840766tunisia-13b-tourism-revenues-expected-2019~text=The20tourism20sector20contributes20tominimum20of20220million20Tunisians

372 httpswwwtradecommissionergccatunisia-tunisiemarket-reports-etudes-de-marches0002801aspxlang=eng


374 httppubdocsworldbankorgen647121603047340365pdf16-mpo-am20-tunisia-tun-kcmpdf

375 Phillipe Trape interview September 4 2020

376 httpsfredstlouisfedorgseriesTUNDGDPGDPPT

377 httpscountryeconomycomkey-ratestunisia~text=Tunisia20has20lowered20its20interest20rates20by200520percentage20pointsBanks20to20implement20monetary20policy

378 httpsfredstlouisfedorgseriesFPCPITOTLZGTUN

379 httpswwwsolidar-tunisieorgsitesdefaultfilesfichierspublicationsevaluation-du-plan-de-developementpdf

I COUNTRY OVERVIEW

Tunisia is one of the wealthier countries in Africa with a GDP per capita of around $3317 in 2019368 Nevertheless the country has experienced weak econom-ic growth since its revolution in 2011 due to domestic and external factors (eg political instability labor strife ter-rorist attacks turmoil in Libya etc) Although the election of President Kais Saied in October 2019 returned some measure of political stability to the country the effects of the COVID 19 pandemic have exacerbated other out-standing economic challenges which complicate efforts to boost growth and employment

Tunisiarsquos GDP grew by 1 in 2019 compared to 26 in 2018 and 19 in 2017369 Agriculture tourism informa-tion and communication technologies (ICT) and manu-facturing are the main contributors to Tunisiarsquos economy Agriculture represented 104 of Tunisiarsquos GDP and 124 of employment in 2019370 Tourism represented around 142 of GDP and directly employed 400000 people in 2019 while the ICT sector contributed to 75 of GDP and employed 86000 people in 2018371 372 On the industrial side Tunisiarsquos manufacturing is primarily export-oriented especially in the chemistry and textiles sectors373 Thus Tunisia has a relatively diversified econo-my but is becoming increasingly services-oriented

One of Tunisiarsquos main challenges is its increasing indebt-edness especially to external creditors Tunisiarsquos pub-lic debt to GDP grew from 392 in 2010 to 722 in 2019 This government indebtedness already exceeds the emerging market debt burden benchmark of 70374 Sustained fiscal deficits drove the growth of this debt

in particular the wage bill for government employees375 Tunisia has financed these deficits through external bor-rowing As of 2019 its level of external debt to GDP stood at 948 which represents an increase of nearly 95 between 2010ndash2019376 These high debt figures put the country at risk of debt distress In terms of other eco-nomic indicators the policy lending rate stands at 625 which is lower than its peak of 775 in 2019377 Inflation has fallen from 73 in 2018 to 67 in 2019 with the recent decline in oil prices likely to further reduce inflation in the short-to-medium term378 The Tunisian Dinarrsquos ex-change rate against the US dollar appears relatively stable over the past year and in previous years where the local currency has experienced severe depreciation this has actually benefited the export sector of the economy Thus Tunisiarsquos overarching challenge is its deep indebtedness which limits the countryrsquos ability to borrow external funds to fund development projects

Tunisiarsquos economic development goals are outlined in its 5-year national development plans Led by the Ministry of Development for Investment and International Cooperation the most recent plan from 2016ndash2020 set out six goals namely achieving an average growth rate of 4 reducing the poverty rate to 2 increasing the national investment rate to 25 creating 400000 new jobs reducing the unemployment rate to 12 increas-ing the national savings rate to 18 and reducing the informal sector to 20 of GDP379 To achieve these goals the 2016ndash2020 national development plan rests on five pillars specifically good governance and reform (espe-cially against corruption) transforming Tunisia into an


economic hub human development and social inclusion a concrete vision for the region and sustainable develop-ment based on a green economy380 Tunisia is currently formulating its 2021ndash2025 national development plan though it is unclear how the COVID 19 pandemic has affected this process Tunisia is also developing a national strategy for employment for 2020ndash2030 in cooperation with its Ministry of Professional Training and Employment and two major unions which will aim to balance the labor market by transforming the economic model enhancing human capital and strengthening market governance381 382 This national strategy for employment reflects how Tunisia considers reducing unemployment to be one of its highest priorities especially with a total unemployment rate of 16 in 2019 and a youth unemployment rate of 36383 384

The Tunisian state-dominated banking system currently faces risks from issues in loan quality as well as availability of liquidity Although Tunisia has 30 banks active in the market the three largest banks under government control hold around 40 of the countryrsquos banking assets as of 2019385 However the banking sector is in a weak position after years of political instability especially with regard to its loan quality The level of non-performing loans (NPLs) stood at 141 in 2019 rising from 134 in 2018386 This high NPL ratio emerged from the legacy of bad debts after the Arab Spring in 2010ndash11 This NPL ratio was already expected to grow to 141 before the COVID pandemic struck387 Although the capital adequacy ratio of the banking sector was relatively stable at 119 in 2017 the rising NPL levels reflect a looming risk to Tunisiarsquos banking sector


381 httpswwwonu-tnorguploadsemploi15333012260pdf

382 httpswwwleaderscomtnarticle27084-lancement-de-la-formulation-de-la-strategie-nationale-pour-l-emploi

383 httpsdataworldbankorgindicatorSLUEMTOTLZSlocations=TN

384 httpsdataworldbankorgindicatorSLUEM1524ZSlocations=TN

385 httpswwwexportgovapexarticle2id=Tunisia-Banking-Systems

386 httpswwwspglobalcom_assetsdocumentsratingsresearchglobal-banking-outlook-2020pdf




390 httpswwwtradinghourscomexchangesbvmt

391 httpswwwwebmanagercentercom20200121443697en-2018-le-pnb-des-banques-islamiques-a-atteint-234-mdt-rapport-bct

392 httpseconomixfruploadssourcedocseminairesmusulmanSamouel20Beji_REV-Post20Revolution20Tunisian2020Financial20Systempdf



395 httpwwwglobalcarbonatlasorgenCO2-emissions

396 httpswwwieaorgcountriestunisia

In addition to a loan quality problem the banking industry also faces a lack of liquidity Tunisiarsquos banks are expe-riencing a funding gap due to a shortage of customer deposits388 Therefore banks must raise funds either from the government international institutions or the stock exchange This limited ability to raise capital has resulted in a liquidity squeeze that ultimately required the Central Bank to extend support to banks in 2018 and 2019389 In this context commercial banks already lacked the liquidity to fund development projects and the COVID 19 pan-demic looks to exacerbate this trend

The Tunis Stock Exchange (BVMT) is one of the largest stock exchanges in Africa The BVMT boasts of $834 billion in market capitalization as of March 2020 with over 81 companies listed390 The market is active in the trading of stocks government bonds and corporate bonds It attracts local regional (MENA) and global investors

Islamic finance also plays a role in Tunisia As of 2018 its share of total assets in the countryrsquos banking sector was around 5ndash6 up from 2 in 2014391 392 Islamic banks represent 63 of total deposits and 48 of total bank-ing sector credit393 Although only three banks in Tunisia are specialized in Islamic finance there is a strong po-tential for Islamic finance to provide additional sources of alternative financing in the future394

Tunisiarsquos carbon emissions are mainly driven by its power and transportation sectors Tunisia emitted 32 million tons (MT) of CO2 in 2018 with 9MT coming from its power sector and another 8MT from its transportation sector mainly as a result of their use of fossil fuels for energy395 396 According to Tunisiarsquos NDC the country


aims to lower its greenhouse gas emissions across all sectors (energy industrial processes agriculture forestry and other land use and waste) in order to lower its car-bon intensity by 41 in 2030 relative to the base year 2010 and specifically lower carbon intensity in its energy sector by 46 compared to 2010 levels397

Energy Context

Fossil fuels dominate Tunisiarsquos primary energy mix According to the International Energy Agency (IEA) nat-ural gas and oil represented 48 and 41 respectively of Tunisiarsquos total primary energy supply in 2018 398 The remainder of the countryrsquos energy mix came from biofu-els and waste (10) and renewables (1)399 During the same year 96 of natural gas was used to power the electricity sector while the transport and industrial sectors consumed 51 and 18 respectively of Tunisiarsquos oil usage400 In terms of the countryrsquos fossil fuel trade flows Tunisia imported 60 of its natural gas in 2017 mainly from Algeria401 Although Tunisia is a net exporter of crude oil the country still needed to import 91 of its refined oil products consumption due to its limited domestic refin-ing capacity402 As of 2018 Tunisia had 998 universal electricity access with 999 of its urban population and 995 of its rural population having access to electricity403 404 405

Tunisia can supply all of its electricity demand through domestic generation with a total installed electricity gener-ation capacity of 5781MW as of 2019406 Natural gas and oil generation plants generated 97 of Tunisiarsquos elec-tricity while the remaining 3 came from renewables407 Thus Tunisiarsquos installed capacity includes 5417MW from fossil fuels (almost all natural gas) and 364MW from

397 httpswww4unfcccintsitesndcstagingPublishedDocumentsTunisia20FirstINDC-Tunisia-English20Versionpdf



400 httpswwwieaorgdata-and-statisticscountry=TUNISIAampfuel=Energy20consumptionampindicator=Oil20products20final20consumption20by20sector

401 httpswwwieaorgdata-and-statisticscountry=TUNISIAampfuel=Oilampindicator=Oil20products20imports20vs20exports

402 httpswwwieaorgdata-and-statisticscountry=TUNISIAampfuel=Oilampindicator=Oil20products20final20consumption20by20sector

403 httpsdataworldbankorgindicatorEGELCACCSZSlocations=TN

404 httpsdataworldbankorgindicatorEGELCACCSURZSlocations=TN

405 httpsdataworldbankorgindicatorEGELCACCSRUZSlocations=TN

406 httpstunesienahkdefrnewsnews-en-detailobg-report-mars-2019-le-secteur-de-lenergie-tunisien

407 httpswwwtradegovcountry-commercial-guidestunisia~text=Tunisia20has20a20current20powerproduces20812520of20the20electricity


409 httpswwwpv-magazinefr20200925la-tunisie-lance-un-nouvel-appel-doffres-pour-70-mwc-de-photovoltaique~text=Le20gouvernement20a20lancC3A920un20troisiC3A8me20appel20drsquooffres20enles20C3A9nergies20renouvelables20(Irena)

410 Google search ndash graph that appears


412 httpswwwexportgovapexarticle2id=Tunisia-Electrical-Power-Systems-and-Renewable-Energy

renewables408 409 However Tunisiarsquos power generation is dependent on the countryrsquos ability to import natural gas Not only are imports rising but the Dinar has also weak-ened over the past five years against the US dollar and the Euro as a result of past political instability and the asso-ciated economic slowdown410 This depreciation further strains Tunisiarsquos ability to continue importing natural gas to meet its rising electricity demand Coupled with 17 loss-es of electricity production during the transmission phase Tunisia is already facing significant challenges in maintain-ing a reliable electricity supply for all especially during the summers when electricity demand is at its highest411

Policy Actors

The main policy actors in Tunisiarsquos electricity sector include

xx The Ministry of Industry Energy and Mines (formerly the Ministry of Energy Mines and the Energy Transition which was folded into the Ministry of Industry) sets the energy policy for the country and supervises the state-owned energy companiesxx The National Agency for Energy Management

(ANME) serves as an informal energy regulator While the ANME does not have the authority to approve electricity tariffs the Agency conducts energy audits certifies standards and labels for energy efficient equipment and overall promotes energy efficiency and renewable energyxx The Tunisian Company of Electricity and Gas (STEG)

is a state-owned vertically integrated utility that owns 5310MW of Tunisiarsquos generation capacity STEG generates over 80 of the countryrsquos electricity and holds a monopoly over the transmission and distribution grids412


xx The Carthage Power Company is Tunisiarsquos only independent power producer (IPP) which owns a 471MW combined cycle gas plant413

xx The Energy Transition Fund (FTE ndash formerly the National Energy Management Fund FNME) is a fund governed by the Ministry of Industry Energy and Mines that is dedicated to promoting renewable energy and energy efficiency measures The FTE has a total capitalization of 40 million dinars (around 14 million USD)414 Funded by taxes on energy and transportation products such as imported passenger cars or incandescent lightbulbs as well as by earnings from the fundrsquos investment activities the FTE is authorized to support energy conservation projects by providing loans and repayable grants as well as by taking equity positions415 416 xx The Depollution Fund (FODEP) is a special treasury

fund set up to encourage companies to protect the environment against pollution as well as promote the use of clean and non-polluting technologies Governed by the National Agency for Environmental Protection (ANPE) which sits under the Ministry of Environment and capitalized in part by a grant from the German Development Bank KfW this fund provides grants that cover a maximum of 20 of the investment cost of the installed technology417 418 The fund also grants access to a FOCRED (Fund to Protect the Environment in Industrial Areas) credit line from KfW that covers 50 of the investment cost repayable over 10 years subject to a grace period of 3 years at the interest rate set at 425419


414 AfDB interview November 13 2020

415 httpsmenaselectinfouploadscountriestunisiaCountry20Fact20Sheet20Tunisia_Energy20and20Development20at20a20Glance202018pdf

416 httpswwwenergieminesgovtnfrthemesenergieefficacite-energetiquefonds-de-transition-energetique-fte

417 httpwwwanpenattnFrfodep_11_52

418 httpswwwwebmanagercentercom20190131430476un-don-allemand-de-pres-de-31-mdt-pour-le-fonds-tunisien-de-depollution


420 httpsblogseuieumedirectionstunisia-social-anger-spreading-following-increase-fuel-prices-h-meddeb

421 httpdocuments1worldbankorgcurateden296941561687292260pdfTunisia-Energy-Sector-Improvement-Projectpdf

422 STEG interview October 23 2020

423 httpdocumentsworldbankorgcurateden241221549641861408pdfConcept-Project-Information-Document-Integrated-Safeguards-Data-Sheet-Energy-Sector-Performance-Improvement-Project-P168273pdf


425 Phillipe Trape AfDB Economist interview Sept 4 2020

426 httpwwwcemi-tunisorgmediasfilesbulletin-cemi-oct-anpdf

427 fileCUsersLeoDownloadsDREI2520Tunisia2520Full2520Report_30Mar15pdf

Sector Trends and Challenges

The state-owned structure of the power sector enables Tunisia to sell electricity at below-market costs for the purposes of political stability Although the Tunisian government embarked on a policy of gradually increas-ing electricity prices to align them with the actual cost of electricity generation in 2014 tariffs have still not caught up to average costs due to rising gas prices and the depreciation of the Dinar420 421 As a result STEG must receive heavy government subsidies ndash around 30 of total cost of production ndash to offset its annual operating losses and yet is still posting negative profits422 423 These losses obstruct STEGrsquos ability to invest in new generation capacity in the face of rising electricity demand STEG is also heavily indebted as a result of borrowing in foreign currency to plug its financing gap and reached an unsus-tainable debt-to-equity ratio in 2016 meaning that the utility has very limited room to access additional external funds to develop new generation capacity424 Non-cost reflective tariffs also constrain private investors who must also rely on state subsidies to ensure profitable power offtake agreements425 Thus state subsidized electricity prices weaken the ability of private investors to develop new generation capacity

Despite the obstacles presented by the structure of the domestic electricity market Tunisia has significant poten-tial for renewable energy deployment across the country especially from wind and solar resources A study by the ANME from 2016 found that Tunisiarsquos onshore wind energy potential stood at 8000MW ndash enough to power the entire country426 The study identified Tunisian coastlines and the countryrsquos southern regions as the best sites for wind power deployment427 In terms of solar power the


same study found that Tunisiarsquos solar irradiation potential ranged from 1800 kWhm2 in the north to 2600 kWhm2 in the south428 Although the most abundant renewable solar resources in southern Tunisia are not near major population centers sites along the countryrsquos coasts still demonstrate the potential for significant renewable energy development

However the share of renewables in Tunisiarsquos electricity generation mix remains very low compared to its renew-able energy potential As of 2018 Tunisia has installed approximately 362MW of renewable energy429 Wind farms comprise 245MW of this installed capacity while solar plants and hydroelectric facilities each have 62MW installed430 431 While renewables currently do not play a significant role in Tunisiarsquos electricity mix their importance could grow in the coming years especially if renew-able energy projects are developed with the purpose of creating more jobs to tackle the countryrsquos unemployment challenge432 433

Two major regulatory structures govern Tunisiarsquos renew-able energy buildout

1 Law No 2015ndash12 on the legal framework for renewable energy project implementation

2 Decree 2016ndash1123 on the specific conditions and procedures for the sale of electricity from renewable sources434

These regulatory structures provide a guide for developers and investors to identify the eligibility and compensation regimes for proposed projects The laws outline three reg-ulatory regimes licensing for IPPs for local consumption (below a set capacity threshold) a concession scheme for

428 httpswwwecomenaorgsolar-tunisia





433 Hela Cheikhrouhou interview October 19 2020

434 httpswwwituintenITU-DRegional-PresenceArabStatesDocumentsevents2017ICTCCPresentationsSession8ANME_ICT2020CC_Tunisia20_July202017pdf




438 httptaiyangnewsinfobusinesstunisia-launches-3rd-70-mw-auction-round


440 httpswwwwindpowermonthlycomarticle1523024first-tunisia-tender-rewards-european-firms

441 GIZ interview October 30 2020

442 GIZ Interview October 30 2020


large-scale projects both for local consumption and for export and small-scale energy self-consumption435

The licensing regime for the small-scale IPPs (smaller than 10MW for solar 30MW for wind) requires developers to enter into an agreement with the Ministry of Industry Energy and Mines This agreement stipulates that the IPP has two years for PV projects and three years for wind projects to form the project company and complete the plant436 The IPP is only allowed to produce electricity after obtaining a separate authorization from the Ministry and undergoing a commissioning test by STEG437 Tunisia has already issued authorizations for two rounds of tenders for solar projects with the first round awarding 64MW and the second round awarding 70MW438 A third round is apparently underway also for a total of 70MW439 The government has also awarded authorizations for a round of four wind projects each with 30MW of capacity in January 2019 under the ldquoauthorization schemerdquo440 STEG would be the offtaker for all of the electricity generated from these projects However most of these tenders are apparently stalled in their development as a result of a lack of viable financing options despite efforts by interna-tional donors to help developers build their business plans and financing capacity441 Only two projects out of all these tenders are online both of which with a capacity of 1MW and funded through on-balance sheet financing442

The large-scale concession regime covers any projects that are larger than those included in the small-scale licensing regime Just as with the licensing regime STEG would be the offtaker from these large-scale projects The Ministry issues a call for public tender and awards contracts once validated by the Tunisian parliament443 Tunisia already issued a 500MW solar tender under this


regime in May 2018 with a project list for a 200MW plant in the province of Tatouine two 100MW facilities in the provinces of Kaiouran and Gafsca and two more 50MW solar parks in the provinces of Sidi Bouzid and Tozeur444 The winners of this tender were announced in December 2019 with a Norwegian company Scatec Solar picking up the 200MW project as well as the two 50MW plants while Francersquos Engie and Chinarsquos TBEA each picked up the two remaining 100MW projects445 Thus the projects under the large-scale concession regime appear to attract more developer interest However most of the focus un-der the concession regime is on large-scale solar projects with large-scale wind projects not moving forward

The small-scale energy self-consumption regime pro-vides a framework for private companies and households to produce renewable energy for their own uses or to sell back to the grid With an amendment to this regime passed in 2019 and in 2020 this framework allows private players to set up project companies and sell up to 30 of excess power to STEG at a fixed price as well as sell electricity to other large consumers through the national grid446 447 However one of the major challenges with this regime is that the PPAs would only enter into force after the project is commissioned448 This arrangement increas-es the perceived risk of these projects and thus they face difficulty in getting financing from banks

However all three of these regimes face challenges in attracting private financing So far no domestic commer-cial bank in Tunisia has extended loans to projects under any of the three regimes449 For the concession regime the main constraint is the mismatch between the loan tenors Commercial banks can give corporate loans for 7ndash10 years but concession regime projects require tenors of around 19 years450 Tunisian banks also face issues with its licensing regime as these projects can only enter into PPAs once theyrsquove reached their commercial operation date (COD)451 As a result both project developers and

444 httpswwwpv-magazinecom20180514tunisia-launches-500-mw-solar-tender

445 httpswwwpv-magazinecom20191220winners-and-prices-of-tunisias-500-mw-pv-tender

446 httpswwwalexander-partnercomfileadmindownloadsrenewable_energy_in_tunisia_-_ipp_regimepdf

447 httpswwweversheds-sutherlandcomglobalenwhatarticlesindexpageArticleID=enEnergyTunisia_amends_the_2016_auto-consumption_regime_in_a_step_towards_market_deregulation

448 UPC interview October 9 2020

449 Attijari Bank interview November 9 2020




453 httpwwwenvironnementgovtnPICCwp-contentuploadsNAMAs-in-Tunisia-anglaispdf

454 httpswwwres4medorgwp-contentuploads201711Country-Profile-Tunisia-Report_05122016pdf

lenders are exposed to high levels of risk during the con-struction phase especially with regard to force majeure or changes in policy In addition there is no clearly defined mechanism to compensate these projects before COD as they do not receive offtake guarantees from the state nor do domestic banks have the adequate capacity for project finance452

Improving energy efficiency complements Tunisiarsquos plans to meet its rising electricity demand and strengthen its energy independence According to Tunisiarsquos Nationally Appropriate Mitigation Actions (NAMAs) for energy total energy demand should be reduced by 34 in 2030 com-pared to business as usual This reduction would mitigate 22 Mt of CO2e by 2030 which corresponds to a reduction of 48 in emissions as compared to a lsquobusiness as usualrsquo emissions scenario453 To that end the Tunisian Renewable Energy Action Plan 2030 set two energy efficiency targets

1 Lowering Tunisiarsquos energy intensity by 3 per year between 2016ndash2030

2 Improving energy efficiency by 17 between 2016ndash2030 meaning Tunisia would consume 17 less energy to deliver the same amount of economic output as a business-as-usual scenario

In addition Tunisia has put in place the following energy efficiency policies and programs454

xx An energy audit of public building and facilities xx A public lighting efficiency campaign through the

widespread deployment of LEDs and other low-energy lightbulbsxx Energy efficiency certifications of household appliances xx Refurbishing 300000 residential and public buildings

to become more energy efficient by 2020xx Implementing an energy efficiency certification system

for public buildingsxx Designing an urban transportation plan for at least five

communities


Finally Tunisia received a $55 million credit line (reduced to $40 million after a project restructuring in 2012) from the World Bank in 2009 to scale up the countryrsquos industrial energy efficiency and cogeneration investments455 This credit line was extended to three banks in Tunisia ndash BH BFPME and Amen Bank This project was meant to re-duce the energy intensity of the Tunisian economy as well as increase the deployment of renewable energy456 The ANME would be responsible for implementing this credit line457 By the end of the project in 2016 this project had achieved 8763 ktoe of energy savings against a target of 8379 ktoe as well as a cumulative reduction of 20584 ktCO2 of emissions458 This project also managed to at-tract $42 million in total investments into energy efficiency projects (including disbursements from the credit line) against a target of $52 million459

Sector Goals Initiatives amp Programs

Tunisia has introduced several regulatory measures and policies to attract private investments in renewable energy The Tunisian Solar Plan (TSP) is the countryrsquos main policy roadmap for the development of renewable energy The TSP was originally established in 2009 by ANME but underwent revisions in 2012 and 2016 to reach its cur-rent form The TSP calls for renewable energy to produce 30 of Tunisiarsquos electricity by 2030 (15 wind 10 solar 5 hydro)460 To achieve this goal this plan targets the installation of 3815MW of renewable energy by 2030 as stipulated by Notice No 012016 from the Ministry of Industry Energy and Mines461 In terms of the specific capacity allocation the plan envisions 1755MW to come from wind energy 1510MW from PV solar 450MW from CSP solar and 100MW from biomass462 The buildout of this planned capacity breaks down into three phases 1000MW in the first phase (2017ndash2020) 1250MW in the second phase (2021ndash2025) and 1565MW in the third phase (2026ndash2030)463 Given how Tunisiarsquos total renewable energy capacity does not exceed 400MW as of 2019 there is much work to be done to be able to reach the

455 httpdocuments1worldbankorgcurateden134241475519900776ICR-Main-Document-P104266-2016-09-29-14-52-09302016docx

456 httpsdocumentsworldbankorgenpublicationdocuments-reportsdocumentdetail549061468312358978tunisia-energy-efficiency-project-environmental-management-framework

457 httpdocuments1worldbankorgcurateden648471468350132160pdf728310PJPR0P100ox0379800B00PUBLIC00pdf



460 httpwwwanmenattnfileadminuser1docDEPRapport_final__PSTpdf

461 httpwwwtunisieindustriegovtnuploadENRGuide_detaille_ENR_tunisie_mai2019pdf



464 httpswwwrcreeeorgnewstunisia-announces-renewable-energy-action-plan-2030

goals of the TSP Nevertheless the Tunisian Solar Plan demonstrates the clearest indication of the countryrsquos prior-ities in its renewable energy buildout

The Tunisian Renewable Energy Action Plan 2030 is a separate national policy that combines renewable energy goals with related energy efficiency goals Launched in November 2016 by the Ministry of Industry Energy and Mines this plan also sets the goal of producing 30 of Tunisiarsquos electricity from renewable sources by 2030 as well as aims to lower energy intensity by 3 per year and reduce total energy consumption by 17 compared to a business-as-usual scenario464 This plan differs from the Tunisian Solar Plan in the scale of its renewable energy buildout Whereas the TSP calls for the installation of 3815MW of renewable energy by 2030 the Renewable Energy Action Plan calls for the installation of 2250MW split between 1000MW from 2017ndash2020 and 1250MW from 2021ndash2030 Thus greater clarity regarding any over-lap between the TSP and the Renewable Energy Action Plan would help resolve how these two plans work in a complementary fashion In terms of policies for off-grid renewable energy Tunisia offers multiple incentive programs to encourage the devel-opment of rooftop solar PV and SWH installations Most of these programs revolve around extending subsidies to partially cover the capital costs of rooftop solar installa-tions most of which is supported by the FTE The three main programs consist of the Program Solaire (PROSOL) policy the PROSOL-Elec policy and the Bacirctiment Solaire program

The Program Solaire (PROSOL) policy is Tunisiarsquos main incentive program to install solar-powered water heaters across the country Launched in 2005 by a joint initiative between the United Nations Environment Programme the national utility STEG Tunisiarsquos ANME and the Italian Ministry for Environment Land and Sea (IMELS) the PROSOL policy provides a loan mechanism for


households to purchase solar water heaters along with a 20 subsidy for the water heater capital costs465 This program has installed around 26000 solar water heaters each year between 2005 and 2016 benefiting over for over 50000 families466 467

The PROSOL-Elec and the Bacirctiment Solaire programs present regulatory frameworks and incentives aimed at encouraging the adoption of off-grid household solar sys-tems The PROSOL-Elec program aims to install 190MW of rooftop PV capacity by 2020468 The Bacirctiment Solaire program offers subsidies similar to those of PROSOL-Elec but targets the installation of PV solar systems for commercial and industrial customers469 To achieve this goal this program offers the following incentives

1 A subsidy for 30 of the investment cost (up to a maximum of 3000 dinars per kWh)

2 A subsidy for 10 of investment cost from IMELS3 A 5-year loan that STEG would repay (excluding any

accumulated interest)470

Tunisia is also participating in the SUNREF program financed with 732 million EUR from the French develop-ment bank AFD471 This program is comprised of three parts The first part sets up credit lines to local banks (UBCI UIB Amen Bank and BH) to finance green invest-ments This credit line is worth 60 million EUR in total472 The second component is a technical assistance pro-gram in collaboration with ANME and ANPE to help them identify eligible projects conduct technical analysis of the proposed investments and the monitor their implementa-tion after the investment decision473 The third component establishes a financial incentive mechanism where local

465 httpssustainabledevelopmentunorgindexphppage=viewamptype=99ampnr=39ampmenu=1449


467 httpssustainabledevelopmentunorgindexphppage=viewamptype=99ampnr=39ampmenu=1449~text=In2020052C20the20Tunisian20governmentthrough20financial20and20fiscal20support

468 httpswwwdenadefileadmindenaDokumentePdf3197_Market_Info_Tunisia_Photovoltaikpdf


470 httpwwwmedrecorgEnPROSOL20Elec_11_13

471 httpswwwenergieminesgovtnfrthemesenergieefficacite-energetiqueprojets-et-programmesprogramme-sunref-afd





476 AfDB Interview November 13 2020




480 httpswwwleconomistemaghrebincom20190115cdc-creation-fonds-financement-energie


banks would pay out bonuses to companies that suc-cessfully complete their green investments thus lowering the overall cost of projects474 As of March 2020 this pro-gram has financed 18 projects and has disbursed around 153 million EUR475

The FTE can also serve as a source of credit for renew-able energy projects but faces challenges in performing at its full potential Despite a plan to offer more financial products the FTE has only given out subsidies of up to 30 for solar PV systems (especially projects conducted by ANME) but has not yet transitioned to giving repayable grantsloans or investing in equity476 The main barrier to this transition revolves around whether to offer conces-sionary interest rates Although concessionary rates would certainly help attract more project developers there is some concern in the Tunisian government of the potential to compete with other providers of concessionary finance such as the SUNREF program477 In addition the relatively small capitalization of FTE limits the fund to investing in small scale projects either in the self-consumption regime or the licensing regime478

Another potential financing mechanism in the works is a new renewable energy fund in collaboration with the Caisse des Deacutepocircts et Consignations (CDC) and STEGrsquos renewable energy arm The CDC is Tunisiarsquos investment vehicle for the countryrsquos pension funds as well as other national savings such as those from the post office from smallholders479 This new renewable energy fund would be geared towards financing projects with high environmental impact and would invest in a private equity capacity using direct investment or convertible bonds for both private sector and PPP projects480 481 The fund has a target of 50


million EUR with 40 provided by the CDC and the rest coming from the AfDB as well as other multilateral donors such as the GCF482 483 484 The ultimate aim of this fund is to act as a catalyst to finance proof-of-concept projects in renewable energy and energy efficiency that are com-mercially viable and have relatively fast preparation times Thus the fund would potentially focus more on licensing scheme scale PV projects (5ndash10MW)485 This fund is cur-rently under development and a request for proposals has gone out in February 2019 According to interviews with stakeholders this fund should be ready to launch in 2021 or 2022486


Agriculture plays a smaller but still significant role in Tunisiarsquos economy as a driver of both economic growth and employment especially in rural areas While the aver-age farm size is ten ha over 75 of the 500000 regis-tered farms in the country are smaller than that figure487 The olive oil dates fishing and citrus sectors are some of the most important crops for Tunisia especially for their export earnings while wheat and barley represent the major staple crops488 489 On the forestry side Tunisia has about 13 million hectares of forests 75 of which are located in the north of the country490 These forests cover only 5 of the national territory and contributes to around 03 of Tunisiarsquos GDP as of 2015491 492

Tunisia has around 54 million ha of land under cultiva-tion but only 435000 ha (or 8) of that land is under irrigation493 However this irrigated land accounts for 35 of national agricultural production494 On the other hand one of the major climate risks for Tunisia is water stress

482

483 httpswwwilboursacommarchesla-cdc-en-quete-d-un-gestionnaire-pour-son-nouveau-fonds-d-investissement-vert-_15838




487 httpsdocswfporgapidocuments1054e263-6efd-4511-bef3-a0b68278c14edownload

488 httpswwwexportgovapexarticle2id=Tunisia-Agricultural-Sector

489 httpswwwintracenorgexportersorganic-productscountry-focusCountry-Profile-Tunisia~text=The20main20cereal20crops20areolive20oil20(FAO2C201407

490 httpwwwfaoorg3a-az357fpdf

491 httpswwwclimateinvestmentfundsorgsitesdefaultfilesmeeting-documentsfip_investment_plan_for_tunisia_0pdf


493 httpwwwfruitnetcomeurofruitarticle180298irrigation-project-kicks-off-in-tunisia


495 httpswwwreuterscomarticleus-tunisia-water-land-feature-trfnthirsty-crops-leaky-infrastructure-drive-tunisias-water-crisis-idUSKBN1XB2X1

496 httpswwwifadorgenweboperationscountryidtunisia

497 httpswwwreuterscomarticleus-health-coronavirus-tunisia-logging-feunder-the-cover-of-lockdown-illegal-logging-surges-in-tunisia-idUSKBN22D4H5

498 httpwwwenvironnementgovtnPICCwp-contentuploadsStratC3A9gie-nationale-dE28099adaptation-de-lE28099agriculturepdf

According to data from Tunisiarsquos Ministry of Agriculture the total amount of water available in the country is equivalent to 420 cubic meters per person per year which makes the country ldquovery water scarcerdquo by UN Water standards495 A study by the International Fund for Agricultural Development claimed that drought would reduce the rain-fed arable land by 30 by 2025 and that the annual cost of environmental degradation tallies to 27 of GDP496 As a result ensuring water efficiency and reliability of water-smart irrigation is a must in order for Tunisiarsquos agriculture to become climate resilient The main policy making body responsible for agriculture in Tunisia is the Ministry of Agriculture Water Resources and Fisheries Within this ministry the entities involved with forest administration are the General Directorate of Forestry and the Department of Forest Usage (Reacutegie drsquoEx-ploitation Forestiegravere ndash REF)497


Despite the importance of shifting to climate-smart agri-culture (CSA) the government does not have any current overarching plans or initiatives to spur investment in this sector The most recent plan on CSA was the National Strategy for Adaptation to Climate Change for Agriculture and Ecosystems in Tunisia from 2007 which entailed implementing early warning systems for climate improved water management and enforcement of the Water Code to protect underground aquifers and reduce water over-consumption and deepening the mapping of Tunisiarsquos agricultural land by climate change risk498 It is unclear whether this plan is still in effect or was implemented at all Nevertheless stakeholders have expressed that the


government is currently mapping the Tunisian agricultural sector as part of the design process of a national food se-curity plan This design process targets subsectors such as water fisheries rangeland etc in order to find bankable projects499

On the other hand the World Bank is implementing its own CSA program in Tunisia through which it made a loan of $140 million to Tunisia in 2018 for its ldquoIrrigated Agriculture Intensification Projectrdquo with around $22 million already disbursed500 This project targets six regions (Beja Bizerte Jendouba Nabeul Sfax and Siliana) in order to improve the management of limited water resources501 The project has four different objectives namely insti-tutional modernization (ie setting up a new irrigation management entity) rehabilitation and improvement works of irrigation infrastructure supporting agricultural develop-ment and market access and covering equipment costs impact assessment studies and training related to the projectrsquos environmental and social management frame-work502 The project will be implemented by the Ministry of Agriculture and the Regional Authorities for Agricultural Development (CRDA)503 However stakeholders have ex-pressed that Tunisia will require more sustainable solutions than simply more efficient irrigation especially given the increasing water scarcity in the country Examples of such solutions include technology transfers for agroecology as well as advanced agricultural engineering504

Tunisia also applied to the GCF in 2019 to obtain $34 million in grant funding for a project to improve CSA in southern portions of the country The project objective is to build the resilience of smallholder farmers and ecosys-tems by rehabilitating degraded ecosystems increasing the efficiency of farming systems creating new green job opportunities and enhancing the enabling environment for adaptation and mitigation505 These initiatives usually take the form of establishing climate-proof irrigation and

499 Ministry of Agriculture interview November 12 2020






505 httpswwwgreenclimatefundsitesdefaultfilesdocument22630-towards-climate-resilient-agriculture-and-livelihoods-southern-tunisiapdf


507 httpwwwanmetnsitesdefaultfilesdeuxieme_rapport_biennal_de_la_tunisie_-_ccnuccpdf





land management techniques improving livestock water-ing systems and diversifying farmer income sources506 Nevertheless this project is still awaiting approval

In terms of forest conservation and management the Tunisian government has published a NAMA on forestry This NAMA set a goal of reforesting 119000 hectares of forests between 2018ndash2034 using trees native to the region This plan also envisages the restoration of 68000 hectares of natural forests and the planting 42500 hectares of shrubs to defend against desertification in the same time frame as well as the planting of 10000 hectares of olive trees between 2017ndash2020507 These efforts should result in a cumulative absorption of 20 MT of CO2 by 2034 as well as allow forests to take up 10 of Tunisialsquos national territory508 However it is unclear whether this NAMA has received the adequate funding or political support to start being implemented

The Climate Investment Funds (CIF) also has a Forest Investment Program (FIP) in Tunisia This program set out to increase carbon sequestration and enhance the production improved use and value of the goods and socio-economic and environmental services of Tunisiarsquos agro-sylvo-pastoral landscapes509 These goals would be achieved through integrated management of landscapes in Tunisiarsquos least developed regions investing and reha-bilitating degraded land and sustainable management of rangelands510 However the CIFs has only funded the preparation phase of this FIP and not the implementa-tion phase Thus this FIP serves more as a framework to guide policy decisions rather than a concrete set of policies themselves511



The urbanization rate in Tunisia is relatively high at 69 as of 2019512 The country would benefit from green urbanization and clean transportation initiatives especially in terms of improving its air quality as the World Health Organization ranks Tunisiarsquos air quality as ldquounsaferdquo513

In June 2019 Tunisia was selected as one of the eligible countries for the ldquoGreen Cities Facilityrdquo sponsored by EBRD with funding from GCF which is meant to provide both capacity building and funding to help selected cities minimize adverse environmental impacts and support the natural environment in collaboration with the EBRDrsquos Green Cities program514 This GCF-funded facility plans to funnel $3035 million to nine countries one of which Tunisia to improve ten cities that have higher than aver-age energy and carbon intensity and are facing a range of environmental and social issues515 This facility will provide concessional financial instruments that will allow ambitious investments in climate-resilient urban infrastructure such as district heatingcooling low-carbon buildings and solid waste management516 However due to delays Tunisia is not listed as one of the countries on EBRDrsquos current Green Cities list so more clarity on Tunisiarsquos potential participation in green urbanization projects under this program is needed

Tunisia was also already engaged in national sustainable cities program prior to its inclusion in the GCF facility Launched in Tunis in June 2019 this consists of creating awareness among stakeholders for the smartsustainable city concept517 The ministry in charge of this program is the Ministry of Local Affairs and the Environment518

II PRIORITY SECTORS

The energy and green cities sectors represent the two most promising sectors in Tunisia for where a Green Bank or NCCF could serve in a catalytic role to spur sustainable growth

512 httpsdataworldbankorgindicatorSPURBTOTLINZSlocations=TN

513 httpswwwiamatorgcountrytunisiariskair-pollution~text=In20accordance20with20the20Worldmaximum20of201020C2B5g2Fm3

514 httpswwwgreenclimatefundsitesdefaultfilesdocumentfunding-proposal-fp086-ebrd-multiple-countriespdf

515 httpswwwgreenclimatefundprojectfp086


517 httpwwwenvironnementgovtnindexphpfrdeveloppement-durableprocessus-de-planification-et-des-gestions-participatives-a-l-echelle-locale-du-ddprogramme-national-des-villes-durable-en-tunisie

518 httpswwwafrik21africaentunisia-country-will-benefit-from-ebrds-green-cities-programme~text=Tunisia20is20one20of20ninewill20be20revitalised20in20Tunisia

Within the energy sector the government has made progress towards building an enabling environment for private sector participation through policy and regulatory changes In addition to the countryrsquos institutional frame-work Tunisiarsquos renewable energy targets provide strong guidance in the immediate term In spite of these positive milestones the sector still requires support for capacity and field building A Green Bank could also play a critical role through providing de-risking mechanisms as the sector lacks a long-term track record especially in regard to utility-scale renewable energy projects

Ensuring that the countryrsquos planning and policies focus on reducing energy consumption through energy efficient infrastructure is essential for realizing its energy transi-tion objectives With the projected growth in electricity demand and growing populations in urban areas Tunisia will need to approach urban development with a focus on energy efficiency It is also important to address water constraints and plan strategically for water consumption through water management practices Energy efficiency and water resource management are two areas where funding support for policy development and subsequent financing for the adoption of new technologies will be cru-cial In both areas a NCCF or Green Bankrsquos support will be needed to bring these sub-sectors to scale Early seed funding for projects could build a robust business case for more private sector involvement

Both sectors have gained some traction in recent years as international development banks have provided financial and non-financial support and involved a variety of differ-ent stakeholders

As for the other five countries included in this report the following criteria were utilized to identify these priority sectors

xx Sectors with significant potential to reduce CO2 emissions and have the potential to support the continued efforts of the countryrsquos progress towards meeting NDCs and SDG commitments


xx Potential for project pipeline has been identified through the initial market scopingxx Significant direct or indirect contributor to the countryrsquos

Gross Domestic Product (GDP) andxx A financing gap exists within the market whereby

catalytic green capital is needed or is deemed to be of great importance to make progress towards the countryrsquos NDCs and development goals


Tunisia is in a unique position from an energy perspective given its high national electrification rates As noted ear-lier much of Tunisiarsquos electricity is powered by imported gas However there is an opportunity for the country to transition to clean energy generation sources that will help the country meet its NDCs and GHG emission reduction targets create new quality jobs associated with a green economy and potentially lower the cost of electricity in the country given that renewable energy projects have a more cost efficient operating and maintenance profile as compared to conventional power plants

The country is considered ideal for solar and wind projects ndash with solar radiation being the strongest in the south of the country and with numerous wind sites identified along the northern coast central and southern regions of the country

The Tunisian Solar Plan specifically sets out a target for renewable energy integration 12 by 2020 and 30 by 2030 of total installed capacity Wind and solar energy provide the most promise of the renewable energy tech-nologies to help Tunisia transition to a state of greater energy security Although historically there has been lim-ited new renewable energy assets developed by IPPs it is anticipated that the predominant share of the additional capacity will be delivered through this structure

The roll out of several renewable energy programs spon-sored by multilateral and bilateral development agencies provide a foundation on which a Green Bank or NCCF could base its design Specifically lessons drawn from the launch of the SUNREF program in Tunisia could prove useful especially regarding capital deployment and a potential partnership with the four commercial banks The government of Tunisia has also expressed interest in seek-ing funding from the GCF GEF and the Adaptation Fund

Complications and Opportunities in the Energy Sector

Tunisia has been challenged by numerous factors that have limited the integration of renewable energy into the national energy mix Barriers have ranged from issues sur-rounding the countryrsquos political transition to financial con-straints as well as the sectorrsquos oversight and operations The following areas have been highlighted as potential points of opportunity where a Green Bank or NCCF could add value

xComplexity of the Schemes Designed to Promote Renewable Energy ndash Tunisiarsquos IPP laws have many specific intricacies and challenges (Challenges related to standard power purchase agreement (PPA) terms will be discussed later in this section)

xx Authorization scheme ndash This scheme was established to address the needs of the sub 10MW (smaller scale) projects and there has been difficulty in bolstering interest from the private sector particularly developers and financiers Challenges include PPA terms and the subpar creditworthiness of the sole power off-taker STEG which make many of the projects are considered to be ldquoun-bankablerdquo

xx Concession scheme ndash Launched to help address the needs of larger scale renewable projects which initially targeted any projects larger than 10MW for solar and 30MW for wind these schemes have similarly encountered challenges with PPA terms Although this scheme was launched relatively recently the wind component has already been on hold because of financing issues further highlighting some of the challenges of this approach

xx Auto-consumption scheme ndash Established to allow companies and industry to generate their own energy this scheme received positive market feedback However the lack of clarity around regulations governing net metering mechanisms has impeded it from growing to its full potential

xCounterparty Risk ndash A particularly significant complication is the weak financial standing of STEG Given the utilityrsquos monopoly over generation and transmission assets and its status as the sole power off-taker for all related contracts non-payment or breach of contract are noted as considerably


high risks for power developers (IPPs) This has broad negative effects on private sector interest in terms of the operating environment in Tunisia The legal and contract structure of the PPA does not provide assurances to for counterparty risk Hence identification and use of de-risking products such as guarantees are considered important interventions to provide market assurance and stability

STEG continues to receive financial support from the state and yearly subsidies but given the macroeconomic outlook of the country even STEG will likely suffer from further financial deterioration which could affect its capacity to supply electricity services

xMacroeconomic Environment and Associated Risk ndash Tunisiarsquos economic potential has always been acknowledged but a number of events contributed to the countryrsquos lackluster economic performance when compared to peer countries and other upper-middle-income countries519 Although the country has continued to liberalize and open its economy since the 1980rsquos approximately 50 still remains under state control which has contributed to historically weak GDP growth high (youth) unemployment and exposed vulnerabilities of the system in light of the global pandemic520 The countryrsquos public finances are in a dire position with a record budget deficit of 14 of GDP anticipated as the country increases spending to address impacts of the pandemic ndash representing the largest deficit for Tunisia in 40 years521 Tunisiarsquos Long-Term Foreign Currency Issuer default rating was downgraded to single B in May 2020522 In June 2020 the government began negotiations with key sovereign lenders to delay debt repayments ndash another signal that Tunisiarsquos pre-pandemic economic woes are likely to remain an issue for a period of time523

In light of these circumstances and the countryrsquos ongoing political transition investment interest

519 httpswwwworldbankorgcontentdamWorldbankdocumentMNAtunisia_reporttunisia_report_the_unfinished_revolution_eng_synthesispdf


521 httpswwwreuterscomarticletunisia-economy-cenbank-int-idUSKBN27D1LC

522 httpswwwfitchratingscomresearchsovereignsfitch-downgrades-tunisia-to-b-outlook-stable-12-05-2020

523 httpswwwreuterscomarticleus-tunisia-economy-2020tunisia-seeks-late-debt-payments-as-crisis-hits-economy-state-budget-idUSKCN24E18V

524 DREI Tunisia 2018 Full Results

525 httpswwwundporgcontentdamundplibraryEnvironment20and20EnergyClimate20StrategiesDREI20Tunisia20201820Methodology20and20Assumptions20(English)20(Jun202018)20(FINAL)pdf



from the private sector has waned In order for the country to achieve its sustainable development goals international financial and non-financial support is required to offer concessional finance products and risk-reduction solutions

xPower Purchase Agreement Terms Are Weak ndash Part of Tunisiarsquos PPA risk is related to counterparty risk as discussed earlier in this section In addition standard PPAs have presented a challenge for private sector actors These PPAs do not provide for any public sector guarantee and the political force majeure is considered too high a risk to mitigate given the countryrsquos economic and political state

Within Tunisia the ldquoabsence of an independent regulator for fair arbitrage between STEG and investorsrdquo has been noted as a high risk 524 Given the statersquos broad control over the countryrsquos assets establishing an independent regulator or ombudsman is considered an important step to provide assurance to the private sector particularly investors

xHigh Cost of Financing ndash Renewable energy projects such as solar and wind have experienced high costs of financing (debt and equity) According to the DREI Tunisia study conducted in 2018 this is driven by three main risk issues ndash power market risk counterparty risk and political risk525 Unlike other countries covered in this report the study found that developer risk had no impact on the cost of equity or cost of debt as its risk perception is lower in Tunisia526

Another aspect that has implications for the cost of capital specifically financing from local banks is the lack of liquidity in the market and general lack of track record in utility-scale renewable energy527

A Green Bank could help develop the renewable energy sub-sector by funding early stage projects to assure they achieve bankability and by financing


pilot projects or programs especially for alternative renewable energy technologies This type of intervention could provide proof of viable business models that could stimulate stakeholder interest and lay a path for scalability and speedier adoption of PPP structures

xPower Sector Subsidies ndash In Tunisia there are two main subsidies that impact the sector (i) the first is non-cost-reflective tariffs and fiscal transfers to STEG and (ii) the second is subsidized gas input prices Although there has been some reform in recent years such as the increase to retail tariffs these subsidies require further overhaul to support greater participation restore market balance and to improve the environment for IPPs


Based on the market dynamics and challenges identified a set of potential interventions are highlighted below to help stimulate renewable energy adoption in Tunisia Each of these are addressable by a green finance facility and a national climate change fund but require deeper market analysis to inform concept development

xProject Preparation Facility and Technical Assistance ndash Stakeholders across the energy sector acknowledged that mobilizing the countryrsquos transition to a cleaner energy mix requires developing projects that can leverage various sources of funding including climate finance solutions There is a very limited existing track record and scarce pipeline of lsquobankablersquo projects These market challenges could be mitigated through programs designed to absorb early stage project risk while simultaneously providing technical assistance to build a more robust ecosystem of sector players early stage project funding and technical assistance The market needs more robust programs focused on technical assistance that can enhance knowledge of new technologies

The Mediterranean Solar Plan (MSP) which was sponsored by the European Commission offered one such technical assistance facility that sought to provide project preparation support to eligible investments in renewable energy and energy efficiency528 Tunisia was one of eight Mediterranean countries that

528 httpsufmsecretariatorgwp-contentuploads201301MSP-PPI_brochurepdf

529 EIB AFD KfW AECID and EBRD

benefited from the MSPrsquos project preparation initiative The initiative sought to build a robust pipeline of projects that had high probability of receiving funding from one of the participating European Financing Institutions529 The model represents an end-to-end project development solution Lessons from the implementation of the initiative should be used to inform future Green Bank or national climate change fund programs in Tunisia

xConcessional Capital ndash Since 2011 Tunisia has continued to seek a balance between social and political tensions and economic prosperity Although the country has made progress through recent decades the global pandemic has set the country back in terms of economic advancement These issues combined with the budget deficit and high indebtedness imply that there may be less of a focus on climate change adaptation and mitigation in the immediate future This will make it harder for private developers to access needed concessional funding and grant funding to support the launch of new renewable energy projects And as commercial banks remain reluctant to finance such projects access to finance for local and smaller private developers will remain low

Without the proper incentives or alternative financing structures designed to mitigate risk such as leveraging concessional capital as part of a blended finance vehicle capital flows to renewable energy projects from local financial institutions will continue to remain weak

xGuarantees ndash Guarantees are considered a powerful and increasingly useful tool to encourage broader market participation As outlined earlier there are a number of risks that project developers and financing entities are exposed to because of the structure of the sector As MDBs continue to explore and consider shifting their intervention models away from direct and intermediated lending towards alternative models that are more catalytic in nature there is likely a growing need for strong credit worthy guarantors This is imperative in the Tunisian context especially in light of the risk that STEG poses to its counterparties and given the fundamental weaknesses of the standard PPA


xOne-stop Shop ndash It has been highlighted during interviews conducted by the UNDP for the De-risking Renewable Energy Investment 2018 assessment that licensing and permitting processes in Tunisia add complexity to the operating environment Similar to other developing economies the establishment of a one-stop shop to streamline the process of permitting could alleviate a bottleneck that causes developers to lose time and incur additional expenses


It is important to gain social acceptance for renewable en-ergy projects as consistent with economic development job opportunities and employment growth early on in the process of Tunisiarsquos energy transition Given the political environment within the country identification of existing organizations to serve as partners or host institutions is entity potentially strong pathway toward creating or housing a Green Bank or NCCF grant facility Some of the existing organizations that have been identified as having potential to fill this role include (i) the Energy Transition Fund (ii) Fonds de Depollution and (iii) the Renewable Energy Fund

xEnergy Transition Fund ndash The Energy Transition Fund (FTE) has been operational since 2005 but was reformed in 2017 It is managed by the National Energy Conservation Agency and is responsible for financing energy efficiency and renewable energy projects The organization has a mandate to deploy capital in the form of grants equity or debt but has mostly focused on grants to date and does not have a strong focus on recycling funds or financial sustainability FTErsquos funds come mainly from tax revenues and potentially from carbon tax if such a tax is levied The edict under which FTE was created also allows for the organization to be financed through other means including funding from international cooperation arrangements

The FTE has served in intermediary roles for the deployment of capital for projects aligned with its mandate For example the FTE served as the administrator of green credit lines such as SUNREF (which was financed by AFD) Given the organizationrsquos unique position in the energy sector ecosystem further exploration with the FTE is recommended to determine if it might be a suitable partner or host


531 httpdocuments1worldbankorgcurateden760031499338439264pdfACS17905-V2-WP-P153680-PUBLICpdf

institution and to better understand any limitations or organizational constraints that are relevant to serving in this type of a role

xFonds de Deacutepollution ndash The Fonds de Deacutepollution (FODEP) was established under the 1993 finance law as a special treasury fund to make investments in companies that are proactively reducing pollution associated with their operational activities The fund has the capacity to use finance as a tool to promote and encourage companies to offset environmental deterioration and harm that was brought about by decades of rapid industrial growth The model employed by the FODEP is one of blended finance or a PPP structure whereby participating companies must contribute at least 30 equity to any particular investment project presented to FODEP and FODEPrsquos subsidy is capped at 20 The residual funding comes from subsidized bank loans which are underwritten under highly favorable terms Projects also benefit from tax and duty incentives530

Given the FODEPrsquos long history the organization has developed experience in working with international development organizations such as AFD and KfW It has historically utilized its subsidy to complement funding provided by development organizations and could potentially be a good partner from a co-financing perspective for a new Green Bank (ie representing the portion of government contribution to seed such a facility)531

xRenewable Energy Fund ndash The Renewable Energy Fund has not yet been fully established It is being created jointly by the Caisse des Deacutepocircts et Consignations (CDC) and STEG-ER in partnership with the African Development Bank With seed funding the Renewable Energy Fund project has launched a call for expressions of interest for the creation development and management of an investment fund dedicated to the equity quasi-equity financing of projects with a high environmental impact and geared towards Tunisiarsquos energy transition Although the launch of this new entity is still to be confirmed there could be an opportunity for partnership whereby a NCCF provides technical assistance and capacity building to eligible projects while a new Green Bank facility could provide the complementary debt equity and quasi-equity


funding needed Such an invest approach at the REF could also seek to aggregate smaller projects (eg companies within an industrial park) to reduce risks and build scale

Green cities as a priority sector

Urban centers across the globe are typically the largest emitters of greenhouse gases and the largest consumers of energy532 Hence focusing on improving how cities are built and or retrofitted represents an opportunity for a new Green Bank and NCCF as well as a sustainable solution for a country like Tunisia with a relatively high urbanization rate

Tunisiarsquos focus on sustainable urban development is linked to its growth in urbanization need for increased energy ef-ficiency and limits to the countryrsquos water supply and need for conservation Another area of interest for Tunisia is the design and funding of improved urban transport systems across its cities

From an energy efficiency perspective the countryrsquos TSP laid out clear targets Energy efficiency was also prom-inent in the countryrsquos NDC which noted an interest in intensifying promotion of energy efficiency in all consumer sectors and for all energy usages533 Given the building sectorrsquos energy consumption levels energy efficiency was also highlighted in the National Strategy (adopted in 2012)

In terms of water resource management reducing water losses is noted as critical Leveraging smart metering de-veloping systems that enhance the reuse and recycling of water and focusing on the upgrade of aging infrastructure are all key investment areas

Earlier this year it was announced that Tunisia had joined the MobiliseYourCity Partnership which has enabled National Urban Mobility Plans and Programmes (NUMPs) This represents an example of Tunisiarsquos ambition to build more liveable and sustainable cities Under the Ministry of Transport Tunisia is embarking on the necessary studies and an action plan to advance this goal By 2030 the

532 httpswwwoecdorgregionalcitiescircular-economy-citieshtm


534 httpsmobiliseyourcitynettunisia-promotes-development-sustainable-and-consistent-urban-mobility-system


expected result is a reduction of GHG emissions of 33 million tCO2eq compared to the BAU scenario534

Complications and Opportunities for Green Cities

Tunisiarsquos macroeconomic situation and politically unstable environment also pose risks for the green cities agenda particularly as the sector matures and becomes the focus for increasing private sector participation and FDI

Despite Tunisia having been identified in 2018 as one of the countries to be involved in the EBRDrsquos Green Cities Programme it is not clear if Tunisia is still planning to move forward with participation in this initiative Several stakeholders noted that previous attempts to build green city models had made little progress It was also consid-ered important to highlight green cities as a priority sector given the connection between urban planning and the countryrsquos focus on energy efficiency initiatives and water management

xBorrowing Capacity of Municipalities ndash As much of Tunisia is still state controlled including some of the largest local banks the municipal sector has struggled to develop ldquodecentralized financing solutions to improve cost recovery and commercial discipline notably in urban transport hellip and in public water and wastewater utilitiesrdquo 535 With the difficulty of achieving decentralization municipalities are essentially cut off from accessing finance and have very limited to no borrowing capacity

The borrowing capacity of municipalities is also affected by their weak or non-existent credit profiles lack of local liquidity in the market and lack of incentive to encourage local financial institutions to finance such projects

xInstitutional and Legislative Frameworks ndash In terms of urban transport and mobility Tunisiarsquos participation in National Urban Mobility Plans and Programmes (NUMP) highlighted the gaps and ldquoabsence of the concept of mobility in the institutional and legislative frameworksrdquo Through this process other planning areas were highlighted as being deficient such as the


lack of strategic approaches to mobility at the national and local levels a siloed approach to managing the various modes of transport and related systems and the ldquolack of mobility charges at the national and local levelsrdquo536 The allocation of use of public funds to finance urban mobility also needs to be rationalized and optimized

Similar issues are likely to arise and exist in other sub-sectors of green cities and will need to be resolved before significant progress is made This includes a focus on more coordinated approaches and improving the exchange of best practices between urban centers

xCapital Intensive Projects ndash In addition to municipalities being challenged by access to capital projects such as building retrofitting and reinforcing infrastructure to be more climate resilient is considered to be heavily capital intensive with high upfront costs and long payback periods Concessionary capital that is favorable not only in terms of pricing but also in tenor length are required to match the long payback periods of such investment types

Potential Interventions for the Green Cities Sector

Given the scope of the market complications outlined above the following interventions have been identified as those with the strongest potential to accelerate the sector especially in light of the unique economic and political situation in Tunisia

xTechnical Assistance and Capacity Building ndash Generally municipalities are resource constrained and will require support to deliver on the ambition of building climate resilient and green cities Any financing will need to be accompanied with strategic planning policy reform technical assistance and capacity building537 This holistic approach may also help to build an enabling environment that is able to attract private sector involvement including the potential to draw capital from the local financial markets





xConcessional Finance ndash Concessional instruments are considered to be an important tool to incentivize sector transition given the high upfront costs associated with developing climate resilient infrastructure Concessional financing products are also needed because adaptation investments can lack the revenue generation potential of mitigation technologies538

Given the fiscal state of the national government it is likely that there will be limited financial capacity to fund such initiatives and the finances of most municipalities are likely even weaker Without access to below market rate funding or grants progress towards achieving the sustainable development of cities will either be significantly reduced or projects will not be undertaken at all539

As municipality revenues are all generated in local currency ensuring that any financing facility can either help to mitigate foreign exchange risk or more ideally can provide long-term patient capital in local currency is crucial This will be an important aspect of any program design to ensure that municipalities can maintain a level of financial sustainability

xProject Preparation and Pilot Project Funding ndash Green urban development is in relatively nascent stages of development in Tunisia In many cities the focus is constrained and budgets do not allow for allocations of capital to support pre-feasibility feasibility studies or energy audits Hence any new program design should take into account the vast need of financing for pre-development activities and also consider financing early stage projects Furthermore funding pilot projects is an important step to raise awareness among municipal leaders and the general public while helping to build a case that robust commercially viable projects are possible to develop

Potential Host Institutions for the Green Cities Sector

xEnergy Transition Fund ndash In addition to the ministries and key policy actors noted earlier in the report the Energy Transition Fund (FTE) represents the strongest potential candidate to serve as a host institution or partner for a new Green Bank or national climate


change fund The organization already has an existing mandate that includes a focus on energy efficiency As noted earlier the FTE has experience in working with international development organizations The entityrsquos capacity to disburse funding through various products is deemed to be a positive attribute

III CONCLUSION

Despite the obstacles presented by the structure of the fossil-fuel based domestic electricity market Tunisia has significant potential for renewable energy and energy efficiency deployment across the country especially from wind and solar resources While renewables currently do not play a significant role in Tunisiarsquos electricity mix their importance could grow in the coming years especially if renewable energy projects are developed with the pur-pose of creating more jobs to tackle the countryrsquos unem-ployment challenge540 541 With a relatively high urbaniza-tion rate Tunisiarsquos green cities sector is also a potential priority for the capacity of a Green Bank or NCCF to help catalyze investment and support sustainable growth as well as water and energy efficiency Both sectors have gained some traction in recent years as international de-velopment banks have provided financial and non-financial support and involved a variety of different stakeholders

With Tunisiarsquos fiscal constraints identifying sources of co-financing from the government to seed any new Green Bank initiative will likely be challenging As seen in other countries a typical alternative is for the government to issue bonds to raise the needed funding However in light of the countryrsquos recent sovereign credit rating downgrade and ballooning debt levels and budget deficits access to financing with amenable terms is likely to be a challenge Alternative structures will need to be explored to cope with this specific circumstance

The Tunisian government has made efforts in recent years to provide clarity around and guidance on development priorities and related targets There are various opportuni-ties across the countryrsquos energy sector and its green cities agenda for a Green Bank and a NCCF to accelerate the rate of sustainable development Interventions focusing on project preparation concessional financing and risk reduction and guarantee mechanisms in the energy sector have been identified as having the strongest potential In



terms of the green cities plan a NCCF and Green Bank are likely to be most impactful in terms of supporting municipalities with the technical assistance and capacity building support required to reform policies and improve strategic planning On the financing side concessional loans or grants will likely be the most effective intervention given the limited resources of most municipalities and limited borrowing capacity


UGANDA

542 As an average from the 45 average during 2011 to 2017 and 6 between 2018 and 2019 World Bank data Uganda | Data (worldbankorg)

543 World Bank data Uganda | Data (worldbankorg)

544 African Economic Outlook 2020 Supplement amid COVID 19

545 Draft Energy Policy 2019

546 Uganda Irrigation for Climate Resilience Project World Bank Report 2020


548 (Markanday et al 2015)


550 Uganda green growth development strategy 201718 ndash 203031 report

I COUNTRY OVERVIEW

Uganda has seen stable economic growth over the past ten years averaging approximately 54 and peaking in 2011 at 94542

543 However this trend is projected to decline due to the COVID 19 pandemic affecting key drivers of the economy including tourism and hospitality manufacturing retail and wholesale trade and education Ugandarsquos economy is also threatened by continued regional instability from neighboring countries which are key export markets As a result the African Development Bank (AfDB) anticipates a decrease in GDP growth down to a best-case scenario of -05 in 2020544 Coupled with rapid population growth this decrease in GDP growth will put increased pressure on the countryrsquos natural resources and offset the benefits of the last decade of economic growth This economic slowdown will affect Ugandarsquos ability to achieve its development goals as set in its National Development Plan III for the period of 2020 to 2025

Moreover Uganda has been facing a number of struc-tural development challenges These challenges in-clude not only a low level of industrialization and a lack of sustainable infrastructure but more importantly low access to electricity (at 28 in 2019 one of the low-est in Africa) and one of the worldrsquos fastest population growth rates (at 33 per year with forecasts predicting a population boom from 427 million in 2018 to over 80 million by 2040) 545 546 547 In addition income inequalities across gender and region low productivity in the rainfed

agricultural sector extreme deforestation (Uganda has lost more than 50 of its natural forest cover since 1990) and climate change effects such as prolonged droughts pest diseases heavy rains and flooding all present additional challenges for the country If no climate-adaptive action is taken the country will face annual costs ranging esti-mated at $273 billion to $437 billion over 40 years from 2010ndash2050 with the largest impacts on energy agricul-ture and infrastructure 548 549

Development Goals and Nationally Determined Contribution (NDC) Targets

Uganda has defined a Green Growth Development Strategy for the period of 2017 to 2031 with five focus areas including sustainable agriculture production (val-ue chain upgrade irrigation and integrated soil fertility management) natural capital management and develop-ment (tourism forestry water resources wetlands etc) planned urbanization and development of green cities sustainable transportation and renewable energy invest-ments Additionally Uganda has identified four economic sectors as having the strongest potential to transform the national economy generate inclusive green growth and environmental sustainability These sectors include agricul-ture renewable energy industrialization and urbanization Uganda has targeted a 10 GDP increase as well as a CO2 reduction of more than 55 million tons (MT) and the creation of four million of jobs across targeted priority green sectors (see Figure 1) all by 2031550


Figure 1 Ugandarsquos Green Growth Development Strategy summary of CO2 emission reductions amp job creation potential per priority sectors 551


552 Uganda_Rapid Situational Assessment_NDC Implementation Stocktake_May 2020_Final


554 Uganda Rapid Situational Assessment NDC Implementation Stocktake_May 2020_Final


Regarding Ugandarsquos national climate goals as related to the Paris Accord the cost of implementation of Ugandarsquos NDCs has been estimated at $552 billion with $309 billion for adaptation and $243 billion for mitigation552 Below are the total NDC costs per priority sector as indicated in the Uganda Rapid Situational Assessment NDC Implementation Report published in May 2020 While

costs vary across priority sectors Agriculture and Energy share the highest investment needs with $103 billion for agriculture sector) $570 million for Forestry and an esti-mated $105 billion for infrastructure and clean transpor-tation553 See the chart below for the breakdown in each sector across adaptation and mitigation related costs

NDC costs per priority sector 2018 554

The country has committed to funding 30 of these implementation costs from domestic capital sources with the remaining amount expected to be financed via international sources555 Consequently Uganda is cur-rently exploring the creation of a National Finance Vehicle (NFV) to mobilize both domestic and international finance

to support NDC related investments In February 2020 the government of Uganda convened a workshop on Accelerating Finance for NDC Implementation through National Financing Vehicles (NFVs) which yielded a rec-ommendation to explore the creation of a NFV to support acceleration of the countryrsquos NDC implementation A pilot

Agriculture Natural Capital (water forestry

etc)

Green Cities Transport Energy

500000

1000000

1500000

2000000

0

10

20

30

40

0

Number of decent jobs GHG emissions reduction (millions tonnes CO2)

Uganda Green Growth CO2 emission reductions amp job creation targets

Agriculture Forestry Water amp Wetlands

Infrastructure Health Risk Management

Energy

5000

10000

15000

20000

00

2520

10530

18360

594135173937

121

10290

Adaptation costs (total $3093 M) Mitigation costs (total $2430 M)

NDC Implementation Costs


project was subsequently commissioned to explore the appropriate form and structure of this proposed NFV as supported by the United Nations Environment Program (UNEP) The recommendations stemming from this small project are referenced later in this chapter

Uganda faces several key challenges on securing financ-ing for the private sector in general and particularly in the green sector alongside challenges of credit constraints and poor execution of public projects The Uganda bank-ing industry is composed of 24 commercial banks with total assets of UGX 30558 billion ($825 billion) as of June 2019 556 557 558 Commercial bank lending to the private sector has been increasing for shilling (UGX) dominated loans at an average growth of 12 from June 2015 to June 2019559 In 2019 average credit growth was 125 whereas for first 10 months of 2020 it was 111560 The current economic crisis due to COVID 19 coupled with underlying structural challenges represent a threat to the countryrsquos financial stability due to the increasing inability of private sector borrowers to service their debt obliga-tions561 This has led to a slowing of credit from commer-cial banks with manufacturing agriculture and trade most affected with credit growth decreases of 35 24 and 22 respectively 562

In addition to impacts on the stability of the private sector the COVID-related economic downturn is likely to affect public finances as well as the ability to issue sovereign debt as revenues decrease while government expenditures (mostly due to the pandemic) increase Although institutions such as the World Bank and the IMF have provided $300 million and $1505 million (UGX 55745 billion) respectively for COVID 19 mitigation and budget support Uganda will still face financial con-straints563 564 565 As of June 2020 Ugandarsquos fiscal deficit was UGX 95 trillion566 567

556 Bank of Uganda Annual report 20182019


558 Exchange rate of 1USD= 000027 as of August 2020 Morningstar

559 Average compound growth based on BoU data (BoU Annual report 20182019)

560 BoU Financial Stability Review March 2020

561 Financial Stability Review March 2020 Bank of Uganda


563 BoU Financial Stability Review June 2020





Decreasing economic activity and stalled private sec-tor credit growth is likely to continue as the pandemic persists especially for green sectors which have less access to domestic finance overall More fundamentally Ugandarsquos financial sector is not well equipped to provide targeted and affordable financing for low-carbon market development The combination of a lack of well-developed projects and lack of technical green finance experience at local banks has contributed to Ugandarsquos current inability to meet green investment targets The major source of green finance in Uganda as in most countries in the East African region has been through international develop-ment finance institutions and impact investors

Based on these conditions several national green sectors have been identified as major drivers of Uganda economic growth with a high potential to maximize climate change impact including agriculture amp forestry transport and energy

Energy Context

Uganda recently revised its 2002 Energy Policy to align it with the countryrsquos development goals The policy lists stra-tegic interventions that include reinforcing and expanding the electricity grid based on service territory electrification master plans for increased grid densification and inten-sification promoting and developing innovative off-grid renewable energy supply systems and promoting produc-tive use of energy to increase energy uptake and overall affordability Furthermore the development goals in the National Development Plan for 2020 to 2025 identify the following targets

xx Increase electricity access from 24 of the population to 60xx Increase per capita electricity consumption from 100

kWh to 578 kWhxx Reduce biomass energy used for cooking from 85 to

50


xx Increase the share of clean energy used for cooking from 15 to 50xx Increase high-voltage transmission lines from 2354 km

to 4354 km xx Increase grid reliability to 90

Uganda has defined an ambitious electrification plan with major renewable on-grid investment as well as a private sector-led off-grid renewable energy especially for rural electrification The national strategy Vision 2040 estimates Ugandarsquos renewable energy potential at 5300MW and targets 22222MW for total installed capacity by 2030 increasing to 41738MW by 2040568 Uganda aims to supply much of this increase in total capacity through re-newables Specific goals include 60 renewably-sourced electricity for grid-based access by 2027 and 80 by 2040 The target for solar on-grid energy supply is es-timated at 5000MW by 2030569 Regarding its National Determined Contribution (NDC) targets Uganda plans to triple its current renewable energy generation capacity in the next ten years and reach 3200MW by 2030

Energy demand in Uganda is mostly driven by household consumption The main source of primary energy for res-idential use is biomass (fuel wood and charcoal) mostly used by households for cooking (only 08 of Ugandans had access to clean cooking in 2016)570 As of June 2019 biomass accounted for 88 of the total primary energy consumed in Uganda while the remaining 10 of primary energy consumed is generated from fossil fuels (kerosene and oil products)571

Ugandarsquos electricity market is characterized by low de-mand As of 2019 the national electrification rate stood at 28 ndash a major increase from 5 in 2002572 Urban areas represented most of this new electricity consumption

568 The Uganda Green Growth Development Strategy 201718 ndash 203031


570 httpswwwse4all-africaorgseforall-in-africacountry-datauganda

571 Source MEMD 2015 Draft National Energy Policy October 2019

572 httpsdataworldbankorgindicatorEGELCACCSZSlocations=ZG


574 Maximum Demand (eragoug)



577 httpswwweraorug

578 httpswwweraorugindexphpstatsgeneration-statisticsinstalled-capacity


580 GET FiT Uganda Annual report 2019

581 Stakeholder consultations

582 Uganda GET FiT Annual Report 2019

Nevertheless electricity only represents 2 of the to-tal primary energy consumption573 The average electric power demand peak was 72376MW in 2019 including electricity exports to Kenya and Tanzania574 Peak de-mand is significantly lower than the installed capacity despite recent 12 growth of domestic peak demand in 2018ndash2019575 For the last five years the average annual growth rate in peak demand has been increasing but this growth has not been enough to absorb electricity genera-tion capacity

In the last 20 years electricity generation capacity has increased from 317MW in 2002 to 1252MW at pres-ent576 577 This growth in generation capacity has resulted in a short-term oversupply situation with hydropower representing almost 92 of the total new electricity capacity installed578 Electricity is Uganda is generated from various sources including 1004MW from hydro-power 100MW from thermal 96MW from cogenerationbiogas 508MW from solar and 1MW from imports579 For the last five years renewable energy sources have been diversifying thanks to major country initiatives such as the Global Energy Transfer Feed in Tariff Program (GET FiT) It is worth noting that almost 14 out of 30 of genera-tion projects in the country are supported by the GET FiT program in particular most of the small renewable elec-tricity generation projects eg solar generation 580 581 As of June 2020 the key milestones for the Uganda GET FiT Program included 14 hydro projects (1184MW) two solar PV projects (20MW) and one biogas project (20MW)582 Three other hydro projects were under construction for an additional capacity of 36MW

Off-grid markets have been developing with a mix of public and private investment These markets are char-acterized by solar home systems and other solar product


distribution and mini-grid development Generation and distribution assets regarding mini-grids are owned or managed by the government private companies local communities or through Public Private Partnerships (PPPs) The public sector role in the mini-grid market in-volves multiple interventions such as the implementation of the Rural Electrification Programme identification of mini-grid sites through the Rural Electrification Agency li-censing and grid territory expansion through the Electricity Regulation Authority (ERA) and subsidies for both gener-ation and connection Despite these efforts less than ten mini-grid projects have been installed in Uganda to-date with several sites currently up for tender according to the Rural electrification Agency (REA) At the end of 2019 the installed capacity supply for off-grid power was 59MW with two of the largest off-grid power plants providing 864 of this capacity583 584 The mini-grid market still needs significant investment to scale-up especially for mini-hydro project development

As Uganda expands and strengthens the off-grid regula-tory environment more commercial tenders are focusing on underserved areas Private sector companies such as BBOXX Village Energy Village Power Aptech Africa Solar Now Ultra Tec etc and local communities are leading the development of the off-grid value chain (both generation amp distribution) with the support of development partners and local financiers Regarding the solar product distribu-tion market in particular multiple technologies have been introduced in Ugandarsquos market including solar home sys-tems water heaters refrigerators water pumps sewing machines oil seed presses fans etc with private sector developers offering financing solutions such as leasing and the use of pay-as-you-go financing mechanisms

Additionally several energy associations across various sub-sectors representing private sector interests have ex-plored partnerships with commercial banks microfinance institutions development partners and local community organizations to provide financing solutions to increase access to electricity for their end-customers These in-clude the Uganda Solar Energy Association the Biomass Energy Efficient Technologies Association Hydropower Association of Uganda Energy Efficiency Association of Uganda and the Uganda National Biogas Alliance


584 httpswwweraorugindexphpoff-gridsenergy-generation-and-sales

Key actors in Ugandarsquos energy sector include the following

xx The Ministry of Energy and Mineral Development charged with providing national policy guidance on energyxx The Electricity Regulatory Authority (ERA) established

in 2001 as part of the government reform of the energy sector has a mandate to regulate electricity generation transmission and distribution ERA issues all required licenses along the electricity value chain (generation transmission distribution import and export) xx The Uganda Electricity Generation Company Limited

(UEGCL) incorporated in 2001 and focuses on electricity generation transmission and substation infrastructure The company develops and manages Ugandarsquos power generation plants Renewable energy projects currently in its portfolio include large hydro power projects (such as Isimba Hydro Power Plant 183MW Isimba and Karuma Hydro Power Project 600MW) as well as medium and small RE projects (Muzizi project 44MW NyagakIII 55MW Latoro SHPP 42MW Okulacere SHPP 65MW etc) xx The Uganda Electricity Transmission Company

Limited (UETCL) has the mandate to build manage and operate installations for high voltage electricity transmission with a capacity above 33kV Additionally the UETCL is responsible for electricity importsexports as well as management of Ugandarsquos fiber optic system xx The Uganda Electricity Distribution Company Limited

(UEDCL) has the mandate to develop and maintain national electricity distribution assets The UEDCL is also responsible for building managing and operating transmission installations with capacity up to 33kVxx The Rural Electrification Agency (REA) was created

in 2001 with a mandate to execute Ugandarsquos rural electrification strategy to achieve 10 rural electrification by 2012 In 2018 the REA was identified as the lead implementation agency for the Electricity Connection Policy 2018ndash2027 (ECP) to address the challenge of low demand and connection rates Key objectives of the ECP are i) increase number of annual connections from the average of 70000 in 2018 to 300000 connections by 2027 and ii) increase


electricity demand on the grid by 500MW by 2027 585

586 REA is supervised by the Rural Electrification Board (REB)587 xx The Uganda Energy Capitalization Credit Company

(UECCC) is a Government institution created in 2007 under the Renewable Energy Policy act to facilitate investments in Ugandarsquos Renewable Energy sector with a particular focus on enabling private sector participation through the creation of the Uganda Energy Credit Capitalization Trust (the Trust) UECCCrsquos mandate also includes providing financial and technical support to unlock renewable energy andor rural electrification projects and programs

Agriculture and Forestry Context

Uganda has defined agriculture as a major driver of national economic growth and has placed a priority on the need to build its resilience to climate change The agriculture sector represents approximately 25 of national GDP provides 50 of exports employs 70 of the population and is the main source of employment for 87 of Ugandarsquos women and youth 588 589 590 Main crops in Uganda include root crops (sweet potatoes cassava and potatoes) oil crops (groundnuts soybean sunflow-er) pulses (beans field peas cow peas pigeon peas) banana plantains cereals (maize rice wheat) and cash crops (coffee tea cocoa cotton and tobacco) mostly for exports

Agriculture in Uganda has relied primarily on rainfall resulting in vulnerability to climate change impacts such as prolonged droughts floods and landslides These increased vulnerabilities result in dire social and economic consequences and significant economic loss for the sec-tor In 2010ndash2011 the country experienced a production loss of 75 of its GDP due to climate impacts For exam-ple a drought in 2010 accounted for 38 and 36 loss

585 Electricity Connection Report 2018-2027


587 Uganda Electricity Act 1999

588 World Bank data

589 World Bank data

590 World Bank data

591 National Irrigation Policy Document 2017

592 Uganda_Rapid Situational Assessment_NDC Implementation Stocktake_May 2020_Final (OPM 2012)

593 Uganda_Rapid Situational Assessment_NDC Implementation Stocktake_May 2020_Final (OPM 2012 World Bank 2020 GFDRR 2020)

594 Bank of Uganda 2019 Annual report (Forestry GDP 20182019 at UGX3886 billion total Agriculture Forestry Fishing GDP at UGX24145 billion)


596 National statistics MWE THE UGANDA GREEN GROWTH DEVELOPMENT STRATEGY 201718 ndash 203031

597 WRI CAIT 2015

in production for beans and maize respectively causing losses estimated at $12 billion while floods caused loss-es estimated at $62 million and impacted nearly 50000 people591 592 593 As a result rural households which rep-resent about 80 of the Uganda population struggle with poverty due to their reliance on rainfed agriculture Various government interventions are being implement-ed by the Ministry of Agriculture Animal Industry and Fisheries with the support of development partners These includes the agricultural value chain development project and micro scale irrigation program Additionally a climate smart livestock system program and ongoing climate smart agriculture program are supported by development partners

Forestry represented 161 of the contribution of the Agriculture Forestry and Fishing sector to national GDP in 2019594 The sector has seen a steady growth of 55 for the last five years between 2014ndash2019595 Forestry has been impacted by the overconsumption of biomass as the primary source of energy The country has lost at least 50 of its forest land between 1990 to 2010 falling from 49 million ha in 1990 to 26 million ha in 2010 thus causing significant damage to Ugandarsquos environmental landscape596 Agriculture and forestry sectors are the lead-ing sources of GHG emissions in Uganda597 Population growth has limited the impact of efforts to reduce the rate of forest loss In 2015 the total forest land decreased further to 196 million ha prompting the government to launch multiple initiatives to address the deforestation trend

As part of the Uganda Vision 2040 a Sustainable Forest Management program was launched to restore forest cover to the 1990s levels while also addressing climate change impacts in the agriculture sector Under this program various interventions have been launched to


promote the adaptation of climate change resilient agricul-tural production systems

Key actors in Ugandarsquos agriculture and forestry sector include the following

xx The Ministry of Agriculture Animal Industries and Fisheries (MAAIF) is mainly responsible for the development and enforcement of policies related to agriculture activities Its main objectives include increasing production and productivity addressing key challenges improving agricultural markets and value addition as well as institutional strengthening for agricultural developmentxx The Ministry of Water and Environment (MWE) is

the key ministry regarding climate change action in Uganda Through its Climate Change Department (CCD) the MWE works in collaboration with the National Planning Authority (NPA) and the Ministry of Finance to mainstream and enhance climate action in all sectors of the economy The Climate Change Department of the Ministry of Water and Environment (MWECCD) plays a coordination role while Ministries Agencies and District Local governments (MALGs) are responsible for direct implementation of climate actions The MWE is currently the only GCF direct access Accredited Entity (grants only not finance) in Uganda It also serves as the national implementing and direct access entity for the Adaptation Fund (AF) Furthermore the MWE plays the role of the national focal point for the United Nations Framework Convention on Climate change (UNFCCC)


Urbanization and transport are priority green develop-ment sectors for Uganda with significant potential for job creation Ugandarsquos rapid population growth (average of 56 per year) has led to rapid urbanization as the urban population grew from 17 million in 1991 to 74 million in 2014 with the capital city of Kampala the largest urban center598 599 In Kampala approximately 40 of the popu-lation lives in informal settlements without basic infrastruc-ture (water waste and sanitation etc)600 Rapid urban

598 The Uganda green growth development strategy 201718 ndash 203031


600 Green Urban Development in African Cities Urban Environmental Profile for Kampala 2015 World Bank Report




604 wwwugandacigcom

growth coupled with climate change poor city planning and inadequate infrastructure have had major impacts on the cityrsquos natural environment including wetlands degrada-tion soil erosion intense flooding etc

The transport sector in Uganda is growing with road infrastructure representing 90 of transport activities601 Road transportation has been growing rapidly with the number of vehicles increasing at an average annual rate of 15 with more than 12 million vehicles as of 2016602 603 Motorcycles are the fastest growing vehicle category and a major source of air pollution in Kampala

Uganda has prioritized its urbanization around four regional cities and five strategic cities in its Vision 2040 plan including Kampala As the 13th fastest growing urban centre in the world Kampala and its Jinja-Kampala-Entebbe (JKE) corridor accounts for more than 60 of Ugandarsquos GDP 604 The other five strategic cities develop-ment are aligned with the country target economic sectors including industry tourism mining and oil

Ugandarsquos NDC urban-related targets include i) ensure climate resilient public and private buildings ii) update transport codes and regulations iii) update risk assess-ment guidelines and iv) improve water catchment protec-tion Other mitigation measures include the development and enforcement of building codes for energy efficient construction and renovation as well as the implementation of a long-term climate resilient transport policy

Multiple efforts are underway to improve the connec-tivity and productivity of urban municipalities in the JKE corridor to strengthen Ugandarsquos economic growth with a focus on industrial parks and clean transportation includ-ing a bus rapid transit project with electric bus transpor-tation in Jinja city Key actors in Ugandarsquos urbanization and transport sectors include the following

xx The Ministry of Works and Transport is responsible for the planning development and maintenance of transport infrastructure and engineering works in the


country It also supports regulatory functions and research activities related to roads rail water or air transport and other engineering works on behalf of the government of Uganda xx The Ministry of Lands Housing and Urban

Development is responsible for ensuring sustainable and effective use and management of land and orderly development of urban and rural areas as well as safe planned and adequate housing for socio-economic development Primary activities include formulating national policies strategies and programs in the lands housing and urban development sectors

II PRIORITY SECTORS

The energy and climate smart agriculture sectors repre-sent the two most promising sectors in Uganda for where a Green Bank or NCCF could serve in a catalytic role to spur sustainable growth

The selection of these sectors was based on the set of analytical criteria applied to each of the six countries con-sidered in this report






Despite the current over supply of electricity Ugandarsquos energy sector needs substantial growth if it is to meet the demands of the countryrsquos ambitious industrialization and economic development goals Installed capacity will need to quadruple in order to achieve 2030 development goals It will be important to leverage existing initiatives towards what is needed to achieve energy sector NDC targets



which are estimated to require roughly $24 billion for mit-igation activities (energy power supply) and $3937 million

for adaptation activities605

Existing initiatives include the following

xx Mobilization of over $455 million in investments through the GET FiT program (with approximately $190 million in public funding and $165 million in private financing)xx Multiple financing schemes such as the Energy for

Rural Transformation program funded by the World Bankxx Innovation challenge grants under the NDC programxx The carbon financing program at GIZxx The Uganda Energy Credit Capitalization Company

(UECCC)xx The Uganda Off-grid Energy Market Acceleratorxx The solar fund set up at the Diamond Trust Bank

providing loans to solar companies andxx The Uganda Development Bank green investment line

financing both high level and high value energy projects through loans606


Despite recent efforts to develop low-carbon markets significant challenges remain to effectively unlock private investment in the renewable energy sector in Uganda These challenges include poor regulatory frameworks a lack of sustainable grid infrastructure low electricity demand and lack of affordable and appropriate financing solutions to expand the off-grid market

xLack of Sustainable Grid Infrastructure Especially for Electricity Transmission and Evacuation ndash Structural challenges and barriers regarding the development of grid infrastructure in Uganda include the need for high upfront capital high financing costs high levels of corruption and poor execution of public projects and limited technical expertise Limited technical expertise has been a major cause of delays during the project construction phase as local project developers struggle to meet international standards regarding environmental amp social aspects Additionally the lack of reliability and capacity in the transmission system is a major constraint leaving it unable to


serve the increased load from new projects This has constrained electricity demand despite significant efforts to reduce electricity losses from over 35 2002 to 174 in 2019 and improve the reliability of the electricity transmission systems for substations in industrial parks 607

xLow Connection Rates Affect Electricity Access and Demand ndash Ugandarsquos current oversupply of electricity is a key challenge impacting efforts to increase the countryrsquos power generation capacity and energy access Efforts to improve the connection rates were launched two years ago by the Rural Electrification Agency through the Electricity Connection Policy 2018-2027 (ECP) The ECP aims to achieve a 60 level of electricity access by 2027 Since its implementation over 250000 households and businesses have been connected to the grid608 However multiple challenges remain including the lack of affordable direct financing available to consumers to buy connection systems

xLow Electricity Demand Limiting Power Generation ndash Ugandarsquos electricity demand is constrained based on a low level of industrialization low level of productive use of energy and the lack of affordable access to electricity in rural areas Households remain the largest consumer of primary energy (mostly biomass) followed by the transport sector which consumes 90 of oil-based energy These factors constrain off-grid market development especially in rural areas

Over the last ten years multiple generation projects were developed in an effort to stabilize supply However given demand constraints Uganda is now faced with a near-term oversupply of electricity which impacts the countryrsquos willingness to develop additional power generation capacity Consequently the Electricity Regulatory Authority (ERA) is currently focusing on aligning new power generation with adequate demand and is restricting issuance of new Power Purchase Agreements (PPAs) In the longer term however stakeholders have indicated that economic recovery and growth along with increased urbanization and industrialization will lead to renewed load growth


608 Stakeholders interviews


xWeak Regulatory Frameworks Impact the Off-grid Market ndash Despite recent updates including the renewable energy feed-in tariff the energy regulatory framework in Uganda is still considered a challenge by those stakeholders interviewed especially regarding supervision of the off-grid market Specifically evolving policy around feed-in tariffs (which have been changing every two to three years) concessions guarantees restrictive tariffs on imported material and equipment for construction and inconsistent application of import duties are all key challenges for private sector investment in the sector (especially mini-grids) Despite a less cumbersome license regime as compared to grid-connected projects off-grid projects still face numerous administrative and licensing hurdles This prevents private sector developers from planning investments appropriately

xLack of Affordable Finance Constrains the Off-grid Market ndash Ugandarsquos existing local financing capacity is not able to meet the countryrsquos climate investments needs or provide appropriate funding (in terms of low interest rates small scale shilling denominated loans longer tenors etc) to private sector renewable energy developers In terms of cost of finance average lending rates (for shilling denominated loans) have been declining in average for the last two years from 211 as of June 17 to 190 as of June 2019609 However these rates remain prohibitively high according to green-sector private stakeholders

Additionally the Uganda National Renewable Energy and Energy Efficiency Alliance (UNREEEA) indicates that small-scale and distributed projects are unable to secure financing Loan size thresholds are typically too high compared to the marketrsquos needs which are usually far below $500000 on average For example a solar powered irrigation scheme in Moyo District (which was uniquely able to access support from development partners) had a total cost of $484339 While this project is considered ldquomedium scalerdquo and typical in terms of size it is a ticket size that is difficult for commercial financiers to support UNREEEA estimates that 80 of market needs are for small loans from SMEs with only 20 for medium or large companies than can develop large-scale projects commensurate with larger commercial loans


xLack of Technical Expertise Constrains Development of Bankable Projects ndash The lack of technical expertise to develop bankable projects in the renewable energy sector has been a major challenge despite efforts by various development partners through such initiatives as Scalingndashup Rural Electrification using Innovative Solar Photovoltaic (PV) Distribution Models as funded by the European Union to build local developer capacity or Transforming Energy Access as funded by DFID (now FCDO) in the United Kingdom to support skill development610 611 Additionally the lack of technical capacity has also hindered the countryrsquos ability to access GCF funds for private sector projects via the Ministry of Water and Environment the sole GCF accredited entity in the country

xOff-grid Development for Productive Use ndash Further investments are needed to increase electricity access targeting productive use in rural areas (outside of Kampala the capital) Most existing initiatives regarding off-grid market development focus on electricity access for lighting in rural areas yet low-income households cannot afford the cost of SHS systems in these areas Beyond solar home systems there is a need for solar productsappliances and mini-grid development for productive use activities such as milling welding tailoring and irrigation These activities have strong market potential locally and could be scaled-up with appropriate financing support

xBiogas Development to Replace Biomass ndash Replacing biomass as a primary source of energy has been a challenge for Uganda involving both a change in household habits and in the economic capacity of households and other market participants The government of Uganda and its development partners have invested in an awareness campaign to demonstrate biogas as an alternative to biomass alongside a framework of financing programs to develop off-grid markets The UECC for example has launched a pilot biomass-replacement refinance facility

xTransmission Connection and Energy Efficiency Infrastructure ndash To increase access to renewable energy Uganda plans to focus on expanding power

610 httpdatabaseenergyfacilitymonitoringeuacpeuproject4624

611 httpenergyaccessorgnewsrecent-newsapplied-research-program-transforming-energy-access

612 As per UECCC interview

613 Stakeholders interview

lines substations and transmission facilities according to the Uganda Regulatory Energy Authority (REA) Investments in energy efficiency for both industrial and public usage is also a priority to help increase energy availability and reduce energy bills These investments will also focus on faulty installations lack of appropriate standards poor aftersales services and reducing losses in the network while improving overall system security and safety of supply Projects currently in the pipeline include the rehabilitation of an existing 19MW hydropower plant upgrading the low and medium voltage distribution network and installing electricity meters According to the REA the private sector will be allowed to provide some of these transmission solutions This process has already started with plans to have a PPP framework by the end of 2020

Potential Interventions for the Renewable Energy Sector

xSmall and Medium Sized Loans Tailored to Meet Market Needs ndash Ugandarsquos renewable energy sector is comprised primarily of small to medium sized companies particularly in the off-grid segment Stakeholders have indicated the need for products designed to support smaller projects andor aggregation options to improve access to effective finance Most existing product offerings from financing institutions target large projects with a minimum investment ticket size that is larger than what is needed for projects by local developers In addition the market needs expanded grant and equity components to facilitate uptake of loan products from commercial banks

xDirect Project Finance from a Dedicated Institution ndash Existing financial products do not offer adequate direct financing to project developers but instead focus on credit lines to local financial institutions to support projects at a capped affordable interest rate of 15 compared to the 25 average market interest rate for green projects612 613 These on-lending programs face various challenges including very high levels of collateral to service these green credit lines inadequate marketing and awareness difficulty in reporting and monitoring the loans from the


commercial banks to project developers The UECCC has indicated its willingness to mobilize more funding and offer direct financing to support renewable energy developers

xExpand Energy Demand through the Following Options

Increase Credit Offerings for Connection Infrastructure and Productive Use of Energy to Consumers ndash Increased electricity connection with a focus on diversifying solar technology use will be critical to increase energy demand especially in off-grids markets There is a particular opportunity in Ugandarsquos agriculture value chain As the price of solar PV decreases solar irrigation projects can be scaled-up in off-grid rural areas to improve water access and crop development where the grid is not accessible Solar-powered irrigation systems can serve as a cheaper alternative to diesel A green bank or financial institution could offer a program that consolidates existing initiatives and coordinates relevant stakeholders across the sector to design financial products specifically designed to expand solar technology use

Offer Loans Linked to the Level of Electricity Demand ndash Low market demand has been a key constraint for development of Ugandarsquos off-grid sector A financial product that could offer loans with yields that vary based on the electricity demand (higher price vs lower price base on the demand) adjacent to a guarantee instrument could help address the marketrsquos demand constraints

Provide Risk Capital to Unlock Private Investments Targeting Sustainable Grid Infrastructure ndash As on-grid electricity supply continues to surpass demand in the short term leveraging public risk capital to engage the private sector through PPP frameworks could support investments in Ugandarsquos renewable energy grid infrastructure Supplying risk-bearing capital to decrease public utility risk and increase connection access will provide more comfort to the Ugandan regulator in issuing new PPAs


615 A company limited by guarantee does not have any shares or shareholders (like the more common limited by shares structure) but is owned by guarantors who agree to pay a set amount of money towards company debts

xTechnical Assistance to Develop Specific Sub-sectors ndash Project developers have identified project preparation support as one of the immediate needs to unlock private investments in the biogas sector The Uganda wind power sub-sector is still nascent and requires financing as well as technical assistance for its development to support project feasibility market studies needed regulatory frameworks and master plans to facilitate wind market development

Potential Green Bank Host Institutions for the Energy Sector

xThe Uganda Energy Credit Capitalization Company (UECCC) ndash The current mandate of the UECCC is to promote renewable energy generation amp distribution and clean cooking It offers specific products to address financial gaps in the sector including a solar loan facility a connection loan facility a working capital facility a partial risk guarantee facility These facilities do not offer direct financing to project developers but rather credit lines to local financial institutions to support projects at a capped affordable interest rate of 15614 The governance structure of the UECCC would require revision to allow for mobilization of private investment The UECCC currently does not have shared capital and it is limited by guarantee615 The Ministries of Energy and Finance as well as the private sector foundation of Uganda are the ldquoownersrdquo of the UECCC It would require an upgrade in terms of institutional capacity to be able to offer direct financing and project preparation support to complement the current on-lending program with commercial banks and microfinance institutions Overall this expanded mandate would be consistent with its existing mandate and increase capacity to mobilize international green finance as well as more private investment

Existing relevant interventions at the UECCC include

xx Credit support instruments for solar projects including lines of credit to financial institutions to on-lend to end users This program has been supported by the World Bank through its Energy for Rural Transformation program in Uganda xx A working capital facility to provide loans to

increase electricity access Key implementers


include the Rural Electrification Agency Ministry of Health Ministry of Water amp Environment and Ministry of Educationxx Lines of credit to support on-grid end user

electricity access Two financial institutions are currently providing the lines of credit directly to the end-users and the REA is leading implementation xx Pilot biogas financing program with a credit line

to EBO financial services and Biogas solutions Uganda Ltd that provides technical assistance and selects biogas promoters xx Long term debt offerings to facilitate longer tenor

debt from financing institutions targeting mini-grid hydropower projects

Climate Smart Agriculture (CSA) and Forestry as Priority Sectors

Climate change coupled with a rising population and other structural challenges have affected Ugandarsquos agri-culture sector putting food security at risk As a result the government of Uganda has identified agricultural resilience to climate change as a priority as well as highlighted the need to mobilize green investments to ensure economic development alongside Ugandarsquos NDC targets

Specific interventions are being implemented to tackle ag-ricultural challenges and decrease the sectorrsquos vulnerability to climate change Irrigation development is one of the major interventions planned by the government to sus-tain agriculture growth in the face of climate change and rainfall variability Under the countryrsquos National Irrigation Master Plan 2010ndash2035 the government plans to rehabil-itate existing public irrigation schemes and develop new ones with the goal of irrigating more than 550000 ha of land by 2035616

Other planned interventions regarding climate smart agri-culture include the development of conservation agricul-ture and climate resilient cropping systems The Uganda Vision 2040 plan promotes the use of water harvesting and solar-powered efficient irrigation to increase agri-cultural productivity and ensure food security A regional center for crop improvement was created in 2018 with the support of the World Bank and many projects around banana conservation are being developed by farmers in

616 Irrigation Area Type A covering 295000 ha and Irrigation Area Type B 272000 ha

617 The Uganda green growth development strategy 201718ndash203031


619 World bank data

the western part of the country Supporting these efforts will be a critical part of Ugandarsquos growth trajectory involv-ing cross cutting economic sectors including agriculture energy water and forestry

Key interventions in forestry include reforestation efforts and agroforestry investments targeting private land This will require a restoration rate of 138600 ha per year according to the Ministry of Water and Environment617 Realizing this goal will require significant investments especially on private forest land To date public fund-ing and support from development partners have been the major sources of finance for the forestry and natural resource sectors However public funding alone will likely be insufficient to finance the total costs of NDC climate smart agriculture and natural resources targets

Complications amp Opportunities for the Agriculture amp Forestry Sectors

xLack of Infrastructure and Technologies to Increase Agriculture Productivity ndash Lack of appropriate infrastructure and technologies such as storage facilities water infrastructure and irrigation systems for the majority of small-scale farms has led to climate vulnerability low productivity and a weak value chain in the agriculture sector For example the Ministry of Agriculture reported that improved irrigation systems such as drip irrigation from harvested water could support adapting to climate change impacts and increase yields by 2ndash5 times for the majority of crops618

xLack of Technical Skills from the Majority of Farmers to Deploy Agricultural and Green Technologies ndash In Uganda only 5 of farms are commercially oriented and 25 are semi-commercial619 The remaining 70 are small subsistence farms with fragmented land holdings Most farmers in rural areas lack the skills capacity resources knowledge and information to access finance green technologies and climate resilient inputs (eg improved seeds etc) Most of these farmers have limited access to non-farm incomes and therefore sometimes face food insecurity due to overreliance on rain-fed agriculture


xAccess to Appropriate Finance Remains a Structural Constraint for Local Farmers ndash Most commercial banks and other financial institutions in Uganda do not offer finance solutions tailored to meet the needs of agricultural projects and instead apply the same financing standards and risk management practice across multiple sectors This has led to a significant mismatch between market demand and available financial product offerings in the agricultural sector with available loan sizes often too high as compared to the needs of small farmers For example the Biodiversity Investment Fund (BIF) as financed by KFW to support renewable energy tourism aquaculture organic agriculture forestry amp apiculture and other wildlife-based enterprises has a minimum ticket size of 500 million Ugandan shillings ($135000) which is too high for the majority of small projects targeted by the BIF In addition the post COVID 19 financing program from the Uganda Development Bank offers recovery loans with a minimum ticket size of 100 million shillings ($27000) which is a threshold that is too high for most commercial farmers As agricultural and forestry projects can often have high upfront costs followed by sustained cost savings over a number of years this mismatch between existing financial products and market needs constrains development of the agricultural sector

xHigh Cost of Finance and Collateral Requirements Are Very Stringent for Farmers and Agribusiness Entrepreneurs ndash Available financial products are primarily short-term products with the longest term around three years maximum with high interest rates and high collateral requirements (at least 50 of the loan) For collateral in particular most local banks require an asset located in Kampala such as a land title Yet most of the time commercial farms are located outside of Kampala and therefore cannot provide the farm land title as a collateral According to the East African Development Bank (EADB) these restrictive requirements have constrained existing financing program implementation including the BIF Although aggregation products were offered by the BIF to project developer associations but providing collateral as a group has also been difficult The Fund was launched two years ago but no disbursement has happened yet620

620 EADB interviewed as of June 26 2020

xFinancing Initiatives to Support the Forestry Sector Have Yet to Materialize ndash Initiatives such as the Tree Fund are still not operational or capitalized despite the pressing need to address significant deforestation on private land across Uganda The Tree Fund was established by the National Forestry and Tree Planting Act in 2003 with the mission to support Ugandan forest restoration efforts by promoting tree planting for non-commercial purposes across the country

xInaccessibility of International Climate Finance for Farmers ndash Accessing international climate funds for private sector businesses is a challenge in Uganda as in most countries in Africa The Ministry of Water and Environment for example has been unable to successfully secure GCF funding for multiple projects in this sector The need for stronger project preparation to ensure alignment with GCF eligibility criteria was identified as an urgent need to address the issue of international climate finance accessibility This is particularly true for projects in forestry in order to stem the tide of deforestation In addition inadequate communication with project developers and landowners was noted as an essential gap in accessing existing green financing resources

xNeed for Partnerships with Public Institutions to Develop the Agriculture Value Chain ndash The Government of Uganda has prioritized development of the agriculture value chain as a key intervention to develop sector growth and drive national economic development Yet there is no appropriate framework to promote large scale private investments in the agriculture sector Additionally Public Private Partnerships (PPP) frameworks are perceived risky due to the political outlook and corruption issues in Uganda

xLack of Coordination among Existing Initiatives Especially in the Forestry Sector ndash There are multiple initiatives in the forestry sector that could benefit from integration to have more leverage and reach a meaningful scale These initiatives include rural tree planting programs such as the ldquoInvesting in Forest and protected Areas for Climate Smart Development Projectrdquo recently launched by the International Development Association (World Bank) as well as programs for rural solar electrification Several of these


could be integrated with existing efforts to reduce biomass use in private land in rural areas Capitalizing on and coordinating these initiatives could also help project developers better access local financing

xNeed for Efficient Climate Smart Irrigation ndash Development of irrigation has been identified as central to Ugandarsquos climate smart agriculture sector Major investments are expected in micro medium and large-scale irrigation systems to mitigate challenges related to water shortages as a result of prolonged droughts A Micro Scale Irrigation Program was launched to promote new irrigation technologies including efficient drip irrigation and other groundwater savings technologies Under this program the government pays between 25 to 75 of the total cost of the irrigation equipment to offset high upfront costs for farmers As most small-scale water pumping systems are imported farmers need appropriate financing to address high upfront costs Some local manufacturers like Future Pump have started providing end-to-end services including direct financing and leasing solutions to address this need621 Assisting local manufacturers to provide appropriate financing support to their consumers could help unlock this market It is also important to note that despite these opportunities Uganda faces a number of challenges related to mobilizing domestic and international financing for infrastructure and actually implementing these projects

xInvest in Productive Use of Renewable Energy for Agriculture ndash Supporting agricultural activities that utilize solar energy and biogas to promote the transition from diesel could also help enhance development of the agricultural value chain in Uganda These activities include food drying milling small agro-processing irrigation etc There is significant potential to scale up these technologies as to date there are only two companies that have tried solar pump irrigation (in dry areas and refugeesrsquo camps)

xAgroforestry Development on Private Land ndash Ugandarsquos Vision 2040 forestry objectives include reforestation and agroforestry investments on private land with an estimated restoration rate of 138600 ha per year (Ministry of Water and Environment)622

621 httpsfuturepumpcomuganda-sf2

622 The Uganda Green Development Strategy 201718ndash203031

The government of Uganda estimates that the bulk of reforestation will occur on private land and is looking for appropriate incentives to encourage these efforts Sustainable agroforestry activities could also help increase food security for farmers Approaches should seek to leverage existing funding initiatives such as the ldquoInvesting in Forest and Protected Areas for Climate Smart Development Projectrdquo which promotes forestry plantation in a holistic program alongside tourism and social economic empowerment

Potential Interventions for Agriculture and Forestry

xOffer Financing Solutions Designed to Promote Productive Use of Renewable Energy and Efficient Water-Related Technologies ndash Uganda could help mitigate the climate change impacts of its agricultural sector by providing financing solutions designed to support the transition from diesel power systems to renewable energy in the agriculture sector as well as for the adoption of adaptation measures A targeted financing program that leverages the current limited offerings by the Ministry of Agriculture (MAAIF) could be brought to a more meaningful scale

xOffer Guarantees or Reimbursable Grants to Address Burdensome Collateral Requirements and Offset the Cost of Capital ndash The high levels of collateral required by Uganda banks has been a key constraint for farmers who generally lack sufficient assets To tackle this challenge a green finance institution could provide guarantees or reimbursable grants to farmers to provide collateral and unlock investment from local banks This green institution could also help farmers access available funding sources such as the BIF at EADB Grants could also offset the cost of capital for farmers looking to adopt climate-related technologies

xProvide Aggregated Loans to Address the Issue of Ticket Size ndash Some agri-business groups are currently considering collective strategies to better access financing such as creating a common pool of funding to serve as collateral for aggregated loans for green projects This could also help facilitate linkages between farmers and small-scale industries and contribute to value chain development


xProvide Project Preparation Support ndash Technical assistance for project preparation including feasibility studies and project design has been identified by project developers and commercial lenders as useful towards increasing the pipeline of bankable green projects in this sector In addition to increasing access to international climate finance enhanced project preparation can also help mitigate project risk and unlock private investment from local commercial banks

xCapitalize the Uganda Tree Fund ndash Capitalizing and operationalizing the Tree Fund would provide appropriate and market-fit financing support to the forestry sector

Potential host institutions for the Agriculture and Forestry sectors

xThe Agricultural Credit Facility (ACF) ndash The ACF was formed in 2009 by the Bank of Uganda in partnership with the Ministry of Finance Planning and Economic Development the Uganda National Development Bank commercial banks Micro Deposit Taking Institutions and Credit Institutions The main objective of the ACF is to promote the commercialization of the agriculture sector through the provision of medium and long-term financing to agriculture and agro-processing projects The financing program is administered by the Bank of Uganda The facility operates on a refinance basis whereby the PFIs provide the loans to farmers and agro-processors and then refinance them through the Bank of Uganda Eligible projects include the acquisition of equipment and machinery and the building of storage facilities etc

xYield Uganda Investment Fund (Yield) ndash The Yield Investment Fund was set-up in 2017 by the National Social Security Fund (NSSF) and the European Union through the International Fund for Agriculture Development (IFAD) The fund is managed by Pearl Capital with an initial capitalization of 12 million EUR It offers equity quasi-equity and debt to SMEs with a ticket size ranging from 250000 EUR to 2 million EUR The Fund was able to increase its capitalization commitments from 12 million EUR to 20 million EUR as of 2020 and has already disbursed over 58 million EUR

III CONCLUSION

Uganda is currently exploring the creation of a climate- dedicated National Financing Vehicle (NFV) as an inno-vative mechanism to mobilize both national and interna-tional climate finance resources directed to high impact climate action The creation of an NFV is aligned with the Government of Ugandarsquos national planning objectives and green growth development goals as current investment trajectories are not on track to meet these goals par-ticularly from the private sector The low carbon-sector currently faces a substantial investment gap with related implications for economic growth

A Uganda climate-focused NFV will require a flexible structure that can attract both domestic and international climate finance Additionally it would require a special re-lationship with the Government of Uganda designed to in-crease private sector investments in the local low- carbon market An integrated approach (with both grants and finance) is required to unlock investment in green projects in Uganda Grants will continue to be required to support project preparation and some market subsidization and finance is essential to bring markets to scale and mobilize private investment

Following these insights and based upon a ldquodecision- treerdquo type options analysis conducted for the UNDP and government of Uganda the National Development Bank (UDBL) has been identified as the most viable near-term option to host a Uganda climate-focused NFV This path would leverage a strong existing national institution and is based on a balance of strategic concerns and consider-ation of local context Based on these findings the UNDP is working with Uganda to commission a feasibility study to design and structure the proposed NFV to mobilize cli-mate green financing to through a partnership with a local financial institution Strengthening the institutional capac-ity of the Uganda National Development Bank to mobi-lize climate finance resources and offer affordable and appropriate financing solutions to green projects could help the country recover from the COVID 19 economic crisis Additionally Uganda would benefit from a climate- dedicated National Financing Vehicle (NFV) to achieve national climate ambitions and related targets as estab-lished in Vision 2040 National Development Plan (NDPIII) National Determined Contributions (NDC)


MOZAMBIQUE

623 httpswwwafdborgencountriessouthern-africamozambiquemozambique-economic-outlook~text=Economic20activity20slowed20in202016reached20in20201620and202017

624 httpswwwworldbankorgencountrymozambiqueoverview

625 httpswwweaglestoneeuxmsfilesMozambiques_banking_sector_regains_stability_-_World_-140819pdf

626 httpswwwunochaorgsouthern-and-eastern-africa-roseacyclones-idai-and-kenneth~text=On20the20night20of2014Sofala20Province2C20in20central20Mozambiqueamptext=With20wind20gusts20of20upleft203742C00020people20in20need

627 httpsdataworldbankorgindicatorNYGDPPCAPCDcontextual=regionampend=2019amplocations=MZampstart=2019ampview=bar

628 httpsdataworldbankorgindicatorNYGDPMKTPKDZGlocations=MZ

629 httpswwwafdborgfileadminuploadsafdbDocumentsGeneric-Documentscountry_notesMozambique_country_notepdf

630 httpswwwtheigcorgwp-contentuploads201904Armand-et-al-2019-Final-reportpdf

631 httpseitiorgmozambique~text=The20extractive20sector20in20Mozambiquein20201720and2020182C20respectively

632 httpdocuments1worldbankorgcuratedpt386461513950634764pdf122234-Mozambique-Economic-Update-Digitalpdf

633 httpswwwthebusinessyearcommozambique-2016aluminum-legacyfocus

634 httpsthesa-magcomfeaturesminingmozal-aluminium-economic-beacon-21st-century-mozambique

635 httpswebcachegoogleusercontentcomsearchq=cachej7fvmt__kq4Jhttpswwwimforg~mediaFilesPublicationsCR20191MOZEA2019003ashx+ampcd=18amphl=enampct=clnkampgl=us

636 httpswwwworldoilcomnews2020716total-finalizes-16-billion-mozambique-lng-financing-program

637 httpsfinancialpostcompmnbusiness-pmnmozambique-gas-project-valued-same-as-whole-nations-economy

638 httpsafricanbusinessmagazinecomsectorsenergymozambique-towards-an-economy-transformed-by-gas


640 httpswwwimforgenPublicationsCRIssues20190618Republic-of-Mozambique-2019-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-46996

I COUNTRY CONTEXT

M ozambique has navigated multiple economic difficulties over the past few years GDP growth has slowed as attributed to a decline

in public and foreign direct investment resulting from the disclosure of previously undisclosed external borrowings in 2016623 624 This sudden disclosure caused the IMF to cut off its programme to the country which partially contributed to currency collapse and debt default from which the country is only starting to recover625 In 2019 Mozambique was hit with two cyclones which resulted in loss of life and related consequences for the countryrsquos economic growth626 Coupled with the impacts of the COVID 19 pandemic Mozambique faces challenges in returning to an economic path consistent with rapid development

Mozambique is one of the poorest countries in Africa with a GDP per capita of $491 in 2019627 The country experi-enced 22 GDP growth in 2019 which continues a trend of lower growth since 2016 a period when the country recorded 32 average real GDP well below the 10 average during 1996-2015628 Mozambiquersquos GDP growth is primarily driven by the agriculture and extractive indus-try sectors Agriculture represented 24 of Mozambiquersquos GDP in 2016 though that figure has fallen slightly in

recent years629 630 The extractive industry sector repre-sented 74 of GDP in 2018 up from 69 in 2016631 Mozambiquersquos primary mining products are coal and alu-minum632 As the second-largest producer of aluminum in Africa and the 14th largest in the world this resource rep-resents almost a third of Mozambiquersquos exports and the national aluminum company Mozal is the biggest industrial employer in the country 633 634 While Mozambique discov-ered enormous reserves of offshore natural gas in 2010 these reserves have yet to be tapped635 Multinational companies such as Total and Exxon are in the process of developing these reserves with an eye to establishing LNG export facilities worth $55 billion of investment 636

637 If these projects come online they will have a profound impact on the economy and governmentrsquos revenues638 According to the IMF initial production of LNG could be-gin in 2023 and reach full capacity by 2026 though these estimates do not account for the effects of the COVID 19 pandemic639

Mozambiquersquos debt-to-GDP stood at 1105 at the end of 2018 as a result of running large fiscal deficits over the past few years640 Although this indebtedness level rep-resents debt distress the IMF considers the current situ-ation to be sustainable as the government is engaged in


efforts to restructure the countryrsquos loans641 Mozambiquersquos policy lending rates are still high at 1425 but down from a peak of 2325 in 2016642 Inflation has fallen to 29 in 2019 down from 265 in 2016 thanks to con-tinued tight monetary policy and food price stability 643 644

The exchange rate for the Mozambiquan Metical has been broadly stable against the US Dollar645 Despite this the country has limited headroom to leverage external capital for development projects

Mozambiquersquos economic development plan is laid out in its National Development Strategy 2015ndash2035 Created by the Ministry of Planning and Development this plan out-lines four priorities including the development of human capital development of infrastructure for a productive base (such as more electricity infrastructure) research and development in energy and agriculture and improvement in institutions The plan also identifies agriculture trans-port electricity water construction and communication as the sectors with the most growth potential Ultimately these efforts collectively aim to achieve a quintupling of GDP per capita by 2035 with a significant focus on Mozambiquersquos agricultural sector and on its industrial base to help the country move up the value chain into higher value-add outputs646

According to the IMF Mozambiquersquos banking sector is stable liquid well-capitalized and profitable even though the rate of non-performing loans (NPLs) reached 11 in February 2019647 However the banking sector is dominated by foreign banks Of the six largest banks in Mozambique only Moza Bancorsquos majority shareholders are from Mozambique648 The six largest banks control





645 httpswwwimforgenNewsArticles20191113pr19411-mozambique-imf-staff-concludes-visit

646 httpunohrllsorgcustom-contentuploads201410Mozambique-Reportpdf



649 httpdocuments1worldbankorgcurateden614411526647372508pdfConcept-Project-Information-Document-Integrated-Safeguards-Data-Sheet-Mozambique-Financial-Inclusion-and-Stability-Project-P166107pdf

650 httpsmacauhubcommo20180813pt-bolsa-de-valores-de-mocambique-atrai-mais-cinco-empresas

651 httpswwwclimatelinksorgsitesdefaultfilesassetdocument2017_USAID_GHG20Emissions20Factsheet_Mozambiquepdf


653 httpswebcachegoogleusercontentcomsearchq=cachehR31OyIkn_IJhttpswww4unfcccintsitesndcstagingPublishedDocumentsMozambique2520FirstMOZ_INDC_Final_Versionpdf+ampcd=1amphl=enampct=clnkampgl=us

654 httpsndcpartnershiporgnewschanging-game-mozambique-launches-partnership-plan-catalyze-implementation-long-term-ndc

655 httpswwwieaorgdata-and-statisticscountry=MOZAMBIQUEampfuel=Energy20supplyampindicator=Total20energy20supply20(TES)20by20source

85ndash90 of all assets loans and deposits in the country and are seeing subdued lending as a result of high interest rates which have driven banks to channel money into government securities rather than private loans649 On the non-bank side Mozambique has a small but active stock exchange the BVM with a $13 billion capitalization as of 2018650 The BVM may represent an alternate source of financing but its small size means that it may only offer limited support for climate change related projects

Mozambiquersquos carbon emissions are mainly driven by the land use and forestry sectors Mozambique emitted 668 million tons (MT) of CO2 equivalent in 2013 of which over half came from changes in forest land (most likely as a re-sult of deforestation for new agricultural land and for wood fuel for cooking and heating)651 Agriculture represented another quarter of these emissions with the remaining coming from energy waste and industrial processes652 According to Mozambiquersquos NDC the country aims to re-duce its emissions by 765 MT of CO2 equivalent between 2020ndash2030 conditional on the provision of financial technological and capacity building from the international community653 654

Energy Context

Given the high reliance on solid fuels in off-grid areas Mozambiquersquos primary energy mix is predominantly driven by biomass According to the IEA 66 of Mozambiquersquos energy comes from biomass with a focus on wood fuels and waste for cooking heating and lighting655 Oil and hydro represent around 15 and 11 of the countryrsquos en-ergy mix respectively Natural gas and coal make up the remaining 8 of primary energy supply with a negligible


amount of non-hydro renewables656 The dominance of biomass-based energy reflects a widespread lack of elec-tricity access As of 2018 only 31 of the population had access to electricity657 This rate of electrification breaks down into 726 of Mozambiquersquos urban population and only 8 of its rural population658 659

Almost all of Mozambiquersquos electricity generation comes from hydropower with natural gas and a small amount of solar making up the remainder of the electricity mix660 Out of Mozambiquersquos 2867MW of installed capacity in 2018 the Cahora Bassa dam represents 2075MW661

662 However the Cahora Bassa dam is situated in the north of Mozambique and lacks a direct connection to the demand center of Maputo in the south663 As a result the Cahora Bassa dam exports nearly all of its electric-ity production to neighboring countries of Zimbabwe and South Africa Mozambique must then re-import the needed electricity from these countries (particularly South Africa) at increased prices mainly to power Mozalrsquos alumi-num processing operations664 This lack of an integrated national grid is one of the most pressing challenges for Mozambiquersquos electricity generation sector Although Mozambique has secured financing for the Temane Regional Electricity Project ndash a 400kv power line that would connect the capital Maputo with a 420MW natural gas power plant (still under construction) in the province of Temane much more is required to enable Mozambique to achieve full grid integration and increased electrification665

Mozambiquersquos remaining electricity production comes from 109MW of smaller hydro plants owned by the national utility Electricidade de Moccedilambique (EDM) as well as 641MW from natural gas fired power plants666 667


657 httpsdataworldbankorgindicatorEGELCACCSZSlocations=MZ

658 httpsdataworldbankorgindicatorEGELCACCSURZSlocations=MZ

659 httpsdataworldbankorgindicatorEGELCACCSRUZSlocations=MZ

660 httpswwwieaorgdata-and-statisticsdata-tablescountry=MOZAMBIQUEampenergy=Electricityampyear=2018

661 httpswwwusaidgovpowerafricamozambique

662 httpswwwhydropowerorgcountry-profilesmozambique

663 httpswwwrvonlsitesdefaultfiles201901Final-Energy-report-Mozambiquepdf


665 httpswwwglobeleqcommozambique-government-celebrates-securing-of-funding-for-temane-regional-energy-project


667 httpswwweiagovinternationalanalysiscountryMOZ


669 httpsscatecsolarcom20190814inaguration-of-the-40-mw-mocuba-solar-power-plant

670 httpswwwpowerutilityleadershipcomwp-contentuploads201802Mozambique_Power_Crisispdf


672 httpsclubofmozambiquecomnewsenergy-reguator-authority-approved

Mozambique has installed 42MW of solar capacity with its first utility-scale 40MW solar plant at Mocuba coming online in 2019668 669 All of this on-grid generation capac-ity suffers from high transmission losses and vulnerability to natural disasters Transmission and distribution losses reach 27 of electricity output while natural disasters or operating failures result in significant blackouts ndash as seen during floods in 2015670 671 Thus Mozambiquersquos power generation sector is fragile and fragmented which further exacerbates the countryrsquos electricity access challenge even for those connected to the grid

Policy Actors

The main policymakers active in Mozambiquersquos energy sector include the following

xx The Ministry of Energy and Mineral Resources (MIREME) supervises the electricity portfolio sets energy policy and oversees the energy regulatorxx Energy Regulatory Authority (ARENE) serves as the

energy regulator with the power to approve electricity prices propose new policies on energy matters and promote ldquofree competitionrdquo in energy services (Formerly known as the Conselho Nacional de Electricidad ndash CNELEC)672 xx Electricidade de Mozambique (EDM) is the state

controlled vertically-integrated national utility that manages the national grid with a controlling stake in HCB ndash the owner of the Cahora Bassa hydropower plant ndash and a stake in the Mozambique Transmission Company xx Hidroeleacutectrica de Cahora Bassa (HCB) is the

independent power producer that owns the Cahora Bassa dam EDM owns an 85 stake of the


company673 HCB regularly sells power to South Africa and Zimbabwe both as energy exports and in order to ldquowheelrdquo its electricity to Maputoxx Mozambique Transmission Company (MOTRACO)

is a joint venture transmission company with equal shares split between South Africarsquos Eskom EDM and Swaziland Electricity Company (SEC) xx Fundo National de Energia (FUNAE) is a public fund

charged with funding the development production distribution and promotion of low-cost power as well as with promoting the conservation and sustainable management of power resources FUNAE focuses primarily on renewable energy resources and has been funded 60 by international development institutions and 40 by the national budget674 FUNAE also acts as a de-facto rural electrification authority for Mozambique as part of its responsibilities include providing energy solutions to rural areasxx National Fund for Sustainable Development (FNDS)

is another public fund that replaced the National Environment Fund in 2016 This fundrsquos main mandate is to promote and finance development projects especially in rural areas675 The scope of these projects includes programs for environmental adaptation and mitigation of climate change sustainable management of forests conservation of biodiversity land administration and land use planning676

xx National Hydrocarbon Company (ENH) is the Mozambican state entity responsible for researching prospecting producing and marketing petroleum products and represents the state in petroleum operations Founded in 1981 ENH participates in all petroleum operations and in their respective phases of exploration production refining transportation storage and marketing of hydrocarbons including LNG and GTL inside and outside the country At the downstream level ENH aims to diversify and increase gas use in Mozambique

673 httpswwwedmcomzsitesdefaultfilesdocumentsReportsEDM_STRATEGY_2018_2028pdf


675 httpswwwaler-renovaveisorgencommunicationnewsmozambican-government-creates-sustainable-development-fund

676 httpswwwclimate-lawsorggeographiesmozambiquepoliciesdecree-no-6-2016-creating-the-national-fund-for-sustainable-development-fnds




680 httpswwwesi-africacomindustry-sectorsfinance-and-policymozambique-introduces-sharp-electricity-tariff-increase



683 httpswwwget-investeumarket-informationmozambiquerenewable-energy-potential~text=Mozambique20has20a20total20renewableand20geothermal20(0120GW)

The financial weakness of EDM poses a significant challenge to Mozambiquersquos power sector This is in large measure caused by EDMrsquos below-cost tariff structure alongside rising costs Even though the company has recently raised tariffs there was still a 20 gap between its tariffs and the cost of supply as of 2018677 In addition to the fact that the price of re-importing electricity from South Africa is three times more expensive than what South Africa pays Hidroeleacutectrica de Cahora Bassa (HCB) the depreciation of the Metical against the South African Rand in 2015ndash2016 further exacerbated EDMrsquos financial issues678 Although EDM raised its tariffs yet again in 2019 it is doubtful that these changes alone can overcome the utilityrsquos financial troubles especially given the utilityrsquos existing debt load of over $1 billion679 680 As a result EDM cannot afford to make the investments needed to improve Mozambiquersquos grid infrastructure This underinvestment in grid infrastructure has led to widespread dissatisfaction with the quality of power as EDMrsquos own study revealed that 56 of customers surveyed said that their power was of low or bad quality and that 767 of customers surveyed said that they owned private generators681 This unreliable electricity supply hinders the full productive capacity of Mozambiquersquos industrial base thus restricting the countryrsquos efforts to increase its industrial capacity Coupled with a weak institutional framework that prevents the MIREME from performing integrated and coordinated planning and monitoring EDM lacks the required financial or institutional resources to provide widespread on-grid electricity services in a sustainable manner682

Despite its current lack of widespread non-hydro re-newable energy installed capacity Mozambique has an extremely high potential for renewables deployment According to a study conducted by the Government of Mozambique and FUNAE between 2011ndash2013 the coun-try can support over 23000GW of solar power followed by 19GW of hydro (large and small) 5GW of wind 2GW of biomass and 01GW of geothermal683 The study also


identified at least 27GW worth of solar power 230MW worth of wind projects 128MW worth of biomass proj-ects and 56GW of hydro projects that have the potential to be readily developed684 Thus Mozambique has enor-mous potential to shift its electricity mix to renewables es-pecially given the widespread abundance of solar power However the high level of import taxes and VAT for the required equipment was noted as a significant barrier to the expansion of renewables by multiple stakeholders685 Coupled with other facilitation services fees these import taxes and VAT could easily amount to 30ndash40 of the installation cost of solar products in the country686

The off-grid market in Mozambique has significant po-tential to provide electricity access with a focus on rural areas The market potential for private-sector led off-grid solutions in Mozambique is four million households687 These households would gain access to electricity and at a cheaper rate than possible through diesel-fired gener-ators A study by the consulting company ICF conclud-ed that consumers in Africa generally save an average $315 for every dollar spent on a pico-PV system when compared to relying on fossil fuel688 In addition off-grid systems could help increase the rate of irrigation for Mozambiquersquos agricultural land and replace the need for diesel-powered systems thus increasing the crop yield and resiliency of the countryrsquos farmers689

In terms of energy efficiency USAID indicates that Mozambique has successfully implemented energy effi-ciency programs in the past and is currently rolling out new standards for industrial motors and commercial light-ing690 However Mozambique does not appear to have major initiatives to improve energy efficiency across its economy at the moment especially as energy efficiency


685 httpswwwaler-renovaveisorgcontentsfilesaler_mz-report_oct2017_webpdf

686 httpssun-connect-newsorgfileadminDATEIENDateienNewCountry-Brief-Mozambiquepdf




690 httpswwwclimatelinksorgsitesdefaultfilesassetdocument2017_USAID_Energy-Efficiency-Opportunity-Study-Mozambiquepdf

691 httpswwwaler-renovaveisorgencommunicationnewsofficial-presentation-of-the-mozambique-national-electrification-strategy-until-2030~text=On20November20122C20the20NationalRepublic20of20Mozambique2C20Jacinto20Nyusiamptext=The20goal20is20to20ensurefeasible20and20financially20sustainable20approach


693 httpdocuments1worldbankorgcuratedfr594061554084119829pdfMozambique-Energy-for-All-ProEnergia-Projectpdf

694 httpswwwworldbankorgennewspress-release20190402mozambique-gets-148-million-to-increase-access-to-electricity-in-five-poorest-provinces



does not feature prominently in its National Electrification Strategy nor its National Energy for All 2030 (ProEnergia) program

Planning Goals amp Targets

Mozambique is engaging in multiple initiatives to develop both its national electrification plans and its renewable energy buildout Mozambique launched its National Energy for All 2030 (ProEnergia) programme in 2018 with an accompanying National Electrification Strategy691 This program calls for universal electricity access by 2030 through on-grid and off-grid solutions as well as for the continued entry of private operators into the electricity market692 The National Electrification Strategy estimates that its goal of achieving universal electricity access with 70 on-grid solutions and 30 off-grid solutions would require $540 million annually totaling an investment of $65 billion between 2020ndash2030693 The ProEnergia plan already secured a $82 million grant from the World Bank in 2019 and is receiving further support from a $66 million Multi-Donor Trust Fund (MDTF) mechanism administered by the World Bank and financed by Sweden Norway and the EU694 This support from the World Bank and the MDTF would help extend the grid to over 250000 households 50 of which are in the five poorest prov-inces of Mozambique ndash Niassa Nampula Zambezia Cabo Delgado and Sofala It would also help remove an expensive upfront connection charge for new custom-ers695 On the off-grid side this financing would help IPPs establish PPPs for combined solar PV and battery mini-grids in collaboration with FUNAE and EDM and also set up a results-based financing facility for quality-certi-fied solar-home systems and solar pumps696 Thus the ProEnergia plan and the National Electrification Scheme


along with funding from World Bank and MDTF offers an ambitious roadmap towards universal electrification which is partly based on renewable energy

The Strategy for New and Renewable Development 2011ndash2025 (EDENR) is Mozambiquersquos roadmap for the greater deployment of renewables Under this plan Mozambique aims to achieve three central objectives697

xx Improving access to energy services through renewablesxx Developing renewable energy technologyxx Accelerating private investment in renewables

The EDENR also targets various actions for on-grid and off-grid deployment of renewables The strategy devis-es multiple fiscal incentives for off-grid renewables de-velopment such as import tax and VAT exemptions698 Mozambique also attempted to develop a feed-in tariff regime to support the EDENR but neither the fiscal incentives nor the feed-in tariff was ultimately implement-ed699 700 The fact that Mozambiquersquos first utility scale solar plant was only inaugurated in 2019 demonstrates how this strategy may not have been as effective as original-ly planned especially without the accompanying fiscal incentives

Despite these national strategies the enabling policy envi-ronment for private participation in developing renewable energy is lacking especially for the deployment of off-grid and mini-grid solutions The policy challenges are fourfold

xx A uniform tariff model across Mozambique xx Heavily subsidized fossil fuel industry xx Unclear regulation on land concessions and licensing

and xx Lack of quality standards701

The uniform tariff means that any electricity project must charge the national tariff rate no matter the true cost of generation Despite recent tariff increases this tar-iff scheme is not conducive to deploying mini-grids by

697 httpswwwlseacukGranthamInstitutewp-contentuploads201505MOZAMBIQUEpdf



700 httpswwwget-investeumarket-informationmozambiquegovernmental-framework~text=Mozambique20has20been20implementing20energy20sector20reforms20for20over20two20decadesamptext=The20countryrsquos20Renewable20Energy20Strategy10020MW20up20to202025

701 httpsgggiorgsiteassetsuploads201902Mozambique-Country-Briefpdf



704 httpswwwdlapipercomeneuropeinsightspublications201911africa-connected-issue-3renewable-energy-in-mozambique

705 httpswwwengineeringnewscozaarticleministerial-approval-for-new-mozambique-electricity-law-pending-2019-04-03

private companies as they cannot recoup the costs of their investment even if remote customers are willing to pay slightly higher prices This tariff issue is exacerbated by the cheap cost of conventional liquid fuels (such as kerosene) thanks to heavy subsidies from the govern-ment Thus mini-grids struggle to compete with existing energy sources for off-grid electricity solutions

In addition the regulatory environment for mini-grids is marked by a lack of clarity and certainty All production transportation (including import and export) distribution and commercialization of electric energy in Mozambique is governed by the Electricity Law Although the law allows private sector actors to generate and distribute power at the local level as well as negotiate tariffs on a case-by-case basis the law does not have any overarching enabling allowances for mini-grids This means that most mini-grid projects are subject to utility-scale project rules and the sub-commercial national tariffs702 Furthermore any separately negotiated mini-grid tariff rates must conform to the national rate once the grid arrives in the same area of operation703 Mini-grid projects also need to apply for land concession contracts from the government regardless of their generation capacity which creates complications for private mini-grid developers704 Finally Mozambique does not have the capacity to guarantee the quality of its mini-grid PV equipment which is not condu-cive to building consumer trust and price expectations

Nevertheless Mozambique in collaboration with USAIDis undertaking revisions to its Electricity Law which may address some of these enabling environment challenges These revisions are meant to support the universal electri-fication goal by 2030 The revisions would further support the role of private investment in the import and export of electricity electricity consumption and energy services In particular the revisions clarify the award of concessions and licenses for utility-scale projects and smaller projects The revisions introduce three types of energy permits ndash concessions licenses and simplified licenses705 While concessions are issued for projects that are 500MW or


larger in scale and that involve state capital smaller proj-ects can be issued licenses directly by the energy regula-tor ARENE706 These licenses are for generation projects using any source above 4MW as well as energy trans-mission outside of the grid and energy distribution and is valid for at least 35 years707 For mini-grids specifically (smaller than 4MW) they can receive simplified licenses for own use and consumption of electricity while allowing for the sale of excess electricity generation708 Although this law was supposed to be confirmed in 2020 the onset of the COVID pandemic has delayed its implementation709

In terms of a cooperation framework with donor coun-tries Mozambique signed the ldquoEnergy Compact Africa ndash Mozambiquerdquo in 2017 with a collection of stakeholders such as USAID the AfDB the EU cooperation agencies from Germany Italy and the USA and the governments of the United Kingdom and the Netherlands710 The main focus of the Compact is to develop a market for the new and renewable energy sector in Mozambique through the combined efforts of government private sector partners and donor assistance711 While the Compact does not provide financing this initiative helps connect stakehold-ers and provides a framework for coordinating renewable energy policy

Sector Initiatives amp Programs

Mozambique is engaging in two major programs to devel-op its on-grid renewable energy generation capacity The PROLER (Promoccedilao de Leilotildees de Energias Renovaveis) program is an initiative to establish both a regulatory framework and an auction mechanism for 120MW of large-scale solar energy projects712 Led by the French Development Agency (AFD) and funded by a grant of 377 million EUR from the European Union the PROLER




709 Embassy of Sweden interview September 16 2020

710 httpswwwaler-renovaveisorgencommunicationnewsaler-signs-the-energy-compact-agreement-to-expand-solar-energy-in-mozambique

711 httpsopenenabelbeenMOZ2127509uboosting-collaboration-efforts-for-renewable-household-energy-in-mozambique-the-energy-africa-mozambique-compacthtml~text=In20November2020172C20under20therenewable20energy20sector20in20Mozambique

712 httpswwwafdfrencarte-des-projetsproler-developing-power-production-renewable-energies



715 httpswwwpv-magazinecom20201001mozambique-tenders-120-mw-of-solar

716 httpswwwgetfit-mozorgabout-getfit


718 httpswwwaler-renovaveisorgencommunicationnewsget-fit-programme-in-mozambique-achieves-another-important-milestone

719 httpswwwaler-renovaveisorgencommunicationnewsimplementation-of-get-fit-program-expected-for-2020


program supports these auctions by conducting all the feasibility studies and preliminary environmental and social studies713 The PROLER program also establishes a guar-antee mechanism for private power producing companies participating in the auction to limit the risk of non-payment by the electricity buyer (in this case EDM) thus reducing off-taker risk714 The goal is to use the EU funding to lever-age 200 million EUR in private investment into the solar projects The PROLER program officially launched its call for tenders in September 2020 having added a 40MW wind project to its 120MW solar procurement efforts715

Mozambique is also preparing to launch a GET-FiT pro-gram in collaboration with the KfW Development Bank and other international donors The GET-FiT provides a comprehensive set of tools to support private participa-tion in renewable energy projects in particular running the reverse auctions extending credit guarantees to protect against contract termination risks and liquidity risks and offering viability gap funding that boosts tariff prices to more attractive levels716 A pre-feasibility study in 2015 found a GET-FiT program could help promote indepen-dent power producers (IPPs) for renewable energy in Mozambique as well as address certain challenges in the countryrsquos power sector such as off-taker risk lack of IPP-track record the unavailability of risk mitigation options and the immaturity of any renewable energy feed-in tariff framework717 In October 2019 Mozambique signed an agreement with KfW for a 25 million EUR grant to set up a GET-FiT program for the country targeting 32MW of solar PV and battery projects in its first round with an ulti-mate goal of installing 130MW of renewable energy718 719 Although this program was slated to begin implementation in the first half of 2020 and call for tenders in 2021 the COVID 19 pandemic may have delayed this timeline720


In the off-grid market FUNAE has been the main driver for deploying rural electricity solutions but other do-nor-led initiatives have emerged in recent years With FUNAE acting as both a financier and the operator this institution has installed approximately 70 diesel-based mini-grids operated by local communities approximately 1500 solar home systems and around 60 solar irrigation systems as of 2016 which benefitted about 37 million customers721 722 However most of the solar power sys-tems installed by FUNAE have been at schools hospitals and administrative offices rather than for residential use and many of the diesel mini-grids have failed due to oper-ation and maintenance issues723

The BRILHO Energy Mozambique program is a five-year effort from 2019ndash2024 meant to catalyze the coun-tryrsquos off-grid potential by de-risking investments in off-grid energy solutions Funded by the UKrsquos Department for International Development (DfID now the Foreign Commonwealth amp Development Office ndash FCDO) and work-ing under the Energy Compact Mozambique BRILHO of-fers structured non-reimbursable funding and specialized support for improved cooking solutions solar home sys-tems and green mini-grids in addition to improving ac-cess to information setting benchmarks and advocating for a better regulatory framework724 BRILHOrsquos employs two grant instruments to deploy its funding ndash catalytic grants for those starting up or scaling up their businesses and grant-based results based financing (RBF) to offer incentives for businesses to tackle more challenging mar-kets725 Under the RBF program developers can be eligi-ble for grants based on meeting certain quantitative and qualitative targets but they can only receive up to 50 of their project costs as grantsmdashthe remaining financing must be sourced elsewhere726 The BRILHO program can provide support of between pound50000 up to pound1500000 per project and currently has a total budget of around pound257 million to be spent over eight years727




724 httpsbrilhomozcomabout-us



727 httpsdevtrackerfcdogovukprojectsGB-1-204837

728 httpsendevinfoimages773Factsheet_EnDev_Mozambique_ENpdf


730 httpswwwignitesolarpostignite-power-to-deliver-electricity-to-300-000-families-mozambique

731 httpswwwdbsaorgENDBSA-in-the-NewsNEWSPages20200220-DBSA-inest-Ignite-Mocambiqueaspx

732 httpswwwignitesolarpostmozambique-president-nyusi-launches-ignite-power-project-to-supply-energy-to-1-8-million-people


Another donor-led initiative is the Energizing Development (ENDEV) program implemented by GIZ and funded by multiple European donor countries With a budget of over 14 million EUR the ENDEV program in Mozambique ran from 2006 to 2019 with a focus on grid densification small solar PV systems and improved cookstoves For the solar component the ENDEV program worked with private sector partners NGOs and educational institu-tions to develop the market for solar home systems and pico-solar solutions ENDEV helped connect distributors with quality manufacturers of PV products and services and to develop last mile rural retail networks728 Although ENDEV did not provide direct financing the program provided training for salespeople and helped reduce the transaction costs associated with information asymmetry for private solar PV distributors ENDEV ultimately helped over 30000 people gain access to electricity through solar solutions replacing expensive and harmful kerosene lamps729

Mozambique also signed an agreement with the compa-ny Ignite Power ndash the fastest growing developer of pay-as-you-go off-grid solar generators in Africa ndash to deliver domestic solar power generators for 300000 homes across the country ndash or 62 of the rural population730 The deal structure entails the creation of a local company Ignite Moccedilambique to carry out the installation of these solar power solutions while receiving sponsorship funding from an independent Mozambiquan private equity firm Source Capital731 The total cost of the project would be $48 million dollars and has already received debt com-mitments from the Development Bank of Southern Africa (DBSA)732 733

In terms of financing facilities Mozambique has multiple resources from international donors to draw upon The Green Peoplersquos Energy for Africa project provides win-dows of financing for decentralized renewable energy


systems in rural areas across the continent Funded by BMZ The Green Peoplersquos Energy project not only offers funds for equipment installation but also provides training in renewable energy systems promotion of renewable en-ergy for productive use and advisory services to improve investments and framework conditions734 These services are all offered in Mozambique alongside a results-based financing facility called the Fund for Sustainable Access to Renewable Energy (FASER) which was jointly established by the Green Peoplersquos Energy EnDev and the Foundation for Community Development735 The energy portion of the FASER facility supports commercial enterprises and agricultural enterprises to purchase equipment such as photovoltaic systems and solar irrigation pumps to power their business activities736

Mozambique also has access to two credit lines to finance private sector participation in off-grid renewable energy solutions One credit line is funded by KfW while the other is organized by the United Nations Industrial Development Organization (UNIDO) and funded by the Global Environment Facility737 738 Both credit lines are implement-ed by the Commercial Bank of Investments (BCI)

The KfW credit line offers a total of 3 million EUR that can be extended either for short and medium-term operations or the leasing of movable property operations These operations are in Metical and the term can be up to five years at a 15 fixed rate with a limit of up to five million Metical for individuals and up to 20 million Metical for companies739 This line focuses specifically on clean ener-gy development

On the other hand the UNIDO credit line is geared towards boosting energy for productive purposes in rural areas740 This credit line has an initial capitalization of $1 million over three years and aims to provide loan

734 httpswwwgizdeenworldwide77417html

735 httpsgruene-buergerenergieorgencountriesmozambique


737 httpswwwaler-renovaveisorgencommunicationnewsbci-creates-an-environmental-credit-line

738 httpsopenunidoorgapidocuments5868684downloadUNIDO20GEF20620Mozambique20922520CEO20re-submission20apppdf


740 httpwwwtse4allmorgmzindexphpenmidiaa-unido-em-parceria-com-o-bci-financia-sistemas-de-energia-renovavel-para-usos-produtivos-na-zona-rural-de-mocambique


742 Interview with GIZ September 16 2020


744 httpsunfcccintclimate-actionmomentum-for-changefinancing-for-climate-friendly-investmentbeyond-the-grid-fund-for-Zambia

745 httpswwwbgfzorg

746 httpsbeyondthegridafricabgfa-countries

guarantees for companies that do not meet the required standards for collateral741

Although these credit lines provide crucial financial sup-port for private renewable energy developers they are not employed to their full potential Companies wanting to use these credit lines still face high interest rates in Mozambique as well as a burdensome application pro-cess742 In addition the bank officials lack the experience and expertise needed to evaluate these renewable energy projects which further complicates the loan application process Coupled with the fact that the funds for both credit lines sit in the Central Bank of Mozambique and must be approved by the Central Bank before they are disbursed these credit lines still require further develop-ment before they can fully benefit private off-grid renew-able energy developers in the country743

Finally the Beyond the Grid Fund Africa (BGFA) could potentially begin operations in Mozambique in the future Funded by the Swedish International Development Cooperation Agency (SIDA) and implemented in partner-ship with the Renewable Energy and Energy Efficiency Partnership (REEEP) the Beyond the Grid Fund Africa employs a results- based financing model to de-risk com-pany entry into the off-grid market744 This results-based financing aims to build markets where none existed previously as well as scale up any existing operations as successfully demonstrated in Zambia745 Although BGFA has expanded to other countries such as Uganda Liberia and Burkina Faso the planned country program for Mozambique has been postponed until further notice746


Agriculture plays a central role in Mozambiquersquos economy contributing approximately 20 of GDP and 79 of total


employment747 Nearly 95 of this sectorrsquos production comes from 32 million smallholder farmers with roughly 400 commercial farmers making up the remaining 5 of agricultural production748 Over 80 of these smallholder farmers plant maize and cassava as well as other staples such as rice and wheat749 While most of these staples are cultivated for sustenance purposes commercial farmers focus on tobacco cotton cashews and sugar as cash crops750 Although more than 62 of Mozambiquersquos land area is arable only 7 is cultivated751 Most of this cultivated land is located flood-prone areas752 In addition most of the countryrsquos agriculture is rain-dependent and thus vulnerable to drought

Mozambique has approximately 33 million ha of poten-tially irrigable land but only about 50000 ha of that land is under operational irrigation infrastructure Most of the irrigated land is in the center and south of the country and focused on cash crops such as sugarcane753 Low levels of electrification in rural areas means that farmers often depend on diesel powered agricultural systems (eg pumping milling) where they can afford them754 Further complicating matters is the fact that only 3ndash5 of the countryrsquos land holdings are registered in terms of owner-ship and only 3 of farmers have deeds to their lands755 Coupled with the fact that all land technically belongs to the state according to Mozambiquersquos Land Law these smallholder farmers have little incentive to invest any addi-tional revenue into improving the climate resilience of their agriculture

The forestry sector is also important to Mozambiquersquos economy 43 of Mozambiquersquos land area (34 million hectares) is forested and forestry-related activities con-tributed to the direct employment of 22000 people in

747 httpsclimateknowledgeportalworldbankorgsitesdefaultfiles2019-06CSA-in-Mozambiquepdf

748 httpwwwfaoorgmozambiquefao-in-mozambiquemozambique-at-a-glanceen





753 httpswwwgrainorgmediaW1siZiIsIjIwMTMvMDIvMjgvMTRfMzFfMjNfNjg0X1BFRFNBX0ZJTkFMX0VuZ2xpc2hfMjJfTm92LnBkZiJdXQ

754 httpsgggiorgsiteassetsuploads201902Mozambique-Country-Briefpdf755 httpsclimateknowledgeportalworldbankorgsitesdefaultfiles2019-06CSA-in-Mozambiquepdf

756 httpdocuments1worldbankorgcurateden147761541432074205pdf131837-WP-P160033-PUBLIC-Country-Forest-Note-Finalpdf



759 httpsreddunfcccintfiles2018_frel_submission_mozambiquepdf


761 httpswwwadaptation-undporgprojectsmozambique-national-adaptation-programme-action-napa~text=National20Adaptation20Programmes20of20Actionsocial20costs20of20climate20change

2011756 In some rural communities local forests contrib-ute almost 20 of household cash income and 40 of subsistence (non-cash) income757 However Mozambique is losing its forests at an average of 058 per year resulting in around 40 MT of CO2 emissions each year758 This deforestation is driven by urban expansion (12) the collection of wood fuel for cooking and heating purposes (7) the (at times illegal) extraction of timber products (8) and the conversion of forests to small-scale agricul-ture (65)759

Policy Actors

The main policymakers for the agriculture and forestry sectors in Mozambique are the Ministry of Agriculture and Food Security and the newly created Ministry of Land Environment and Rural Development (MITADER) Within MITADER the institutions involved in forest man-agement are the National Directorate of Forests (DINAF) National Directorate of Land (DINAT) National Directorate of Environment (DINAB) National Center for Cartography and Remote Sensing (CENACARTA) and the aforemen-tioned National Fund for Sustainable Development760


The policy foundations for climate smart agriculture in Mozambique include the National Adaptation Programme of Action (NAPA) and the National Climate Change Adaptation and Mitigation Strategy (NCCAMS) for 2013ndash2025 With the NAPA focused on strengthening capacities of agricultural producers to deal with climate change as a priority sector a number of climate smart agriculture (CSA) initiatives have been implemented761 In particular crop residue management mulching com-posting and rotations are some of the key climate-smart


practices that are being adopted across several produc-tion systems in Mozambique762 The NCCAMS builds on the work of the NAPA by further emphasizing the resilience of agriculture and livestock as well as devel-oping low-carbon agricultural practices763 Mozambiquersquos strategic plans in these sectors (eg Strategic Plan for the Development of the Agriculture Sector (PEDSA) the National Agriculture Investment Plan (PNISA) the National Irrigation Strategy 2011) all emphasize increasing both the productivity of food crops and the resilience of agriculture to the effects of climate change creating an ambitious overarching framework for the implementation of CSA in Mozambique764 Expanding agricultural areas under irriga-tion is a key objective in Mozambiquersquos PEDSA Strategic Plan with a goal of increasing yields for both smallholder and larger farmers Efficient drip irrigation systems pow-ered by distributed renewables in rural and drought-prone areas could support the growth in yield and greater crop variety as well as contribute to increasing the resilience of Mozambiquersquos agriculture sector765 However actual funding for climate change related measures often does not match the ambition of these plans as the national government spent only 31 and 7 on the environment and on agriculture respectively in 2010766


Non-government entities and international donors are also involved in supporting CSA in Mozambique One of the more prominent initiatives is the Pro-Poor Value Chain Development in the Maputo and Limpopo Corridors (PROSUL) program which lasted from 2012ndash2019 Led by the International Fund for Agricultural Development (IFAD) the PROSUL program was geared towards in-creasing the incomes of smallholder farmers by produc-ing irrigated vegetables cassava and livestock including cattle goats and sheep in a climate resilient way767 The


763 httpswwwgreengrowthknowledgeorgsitesdefaultfilesdownloadspolicy-databaseMOZAMBIQUE2920National20Climate20Change20Adaptation20and20Mitigation20Strategypdf




767 httpswwwifadorgenweboperationsprojectid1100001618countrymozambique

768 httpsreliefwebintreportmozambiqueland-tenure-interventions-pro-poor-value-chain-development-project-maputo-and


770 httpswwwccardesaorgsitesdefaultfilesickm-documentsClimate20Smart20Agriculture20in20Mozambique2028CSA29pdf

771 httpswwwifadorgdocuments3871164440046455Mozambique20110000161820PROSUL20Supervision20Report20October2020191938706b-0e3f-cdad-48a6-b47f933b1802

772 httpswwwusaidgovmozambiquefact-sheetsfeed-the-future-mozambique-climate-smart-agriculture-activity-beira

773 httpsmediaafricaportalorgdocumentsPolicy_Brief_Issue_192017_CSA_Mozambique_-_Final_Draft01pdf


PROSUL program was coordinated by the Ministry of Agriculture and Food Security and administered by the Agricultural Development Fund This program aimed to reach over 20000 households by strengthening land rights in the horticulture cassava and red meat value chains768 These land rights regularizations were accom-panied by interventions in irrigation schemes with mul-tipurpose wells gender mainstreaming training in food supplementation for animals for long periods without rain and identification and demarcation of communal grazing areas769 770 As of the final progress report this program overachieved its goals by benefitting nearly 29000 house-holds by the end of 2019771

There are multiple other international donor programs active in Mozambique for CSA For example USAID instituted a five-year program Feed the Future Climate Smart Agriculture Beira Corridor (FTF-CSA-BC) to in-crease awareness and demonstrate effectiveness of key climate smart technologies and practices (eg improved seed water conservation techniques etc) as well as to strengthen market access and supply for farmers772 Other initiatives include the Pilot Programme for Climate Resilience funded by the World Bank and the Climate Smart Agriculture Programme funded by the UK773 In terms of actually funding CSA the Global Environment Facility (GEF) has been the main source of grant funds for Mozambique contributing $70 million for projects related to agriculture forestry and adaptation in coastal areas774 Other funders include the Adaptation for Smallholder Agriculture Program (ASAP) the Global Climate Change Alliance (GCCA) and the MDG Achievement Fund While Mozambique receives strong technical and financial sup-port from abroad for climate smart agriculture the country does not have a dedicated local funding facility to support this sector


Mozambique is currently in the process of implementing a ldquoReducing emissions from deforestation and forest degra-dation in developing countriesrdquo (REDD+) strategy to pro-tect its forests and achieve its emissions reductions goals One of the most prominent initiatives to help Mozambique achieve its REDD+ goals is the Forestry Investment Project With $47 million of funding from the World Bank the IFC and the Climate Investment Funds (CIF) and administered by MITADER and FNDS the Forestry Investment Project is a two-tiered plan that finances overarching reforms as well as pilot programs in specific provinces to test deforestation and emissions reduction strategies775 The overarching reforms target strengthening forest governance and land tenure sustainable agricul-ture and livelihoods sustainable biomass energy and establishing multipurpose forests with both natural forest preservation and commercial forest plantations776

The second tier of the Forestry Investment Project re-volves around two programs the Zambeacutezia Integrated Landscape Management Program (ZILMP) and the Integrated Landscape Management Program in Cabo Delgado Province (PROGIP-CD)777 ZILMP is a forest conservation and management program aligned with Mozambiquersquos REDD+ strategy and managed at the national level by the FNDS778 The Zambeacutezia province has around 13 of Mozambiquersquos forest cover but also accounts for 8 of the national deforestation level779 The ZILMP is meant to reduce emissions due to deforestation in the province by 30 below the reference level (around 6 MT of CO 2e) in the first period (2018ndash2019) and by 40 in the second period (2020ndash2024)780 These emissions can be monetized thanks to an agreement with the FCPF Carbon Fund which will pay up to $50 million to designat-ed beneficiaries once the emissions reductions are veri-fied These payments would be split 70 to communities

775 httpswwwclimateinvestmentfundsorgsitescif_encfilesmozambique_fip_investment_planpdf



778 httpsewsdatarightsindevelopmentorgfilesdocuments24WB-P164524pdf

779 httpswwwnitidaeorgenactionszilmp-etude-de-preparation-a-un-programme-juridictionnel-redd-dans-la-province-de-zambeze-zambezia-integrated-landscapes-management-program

780 httpswwwforestcarbonpartnershiporgsystemfilesdocumentsMozambique_Revised20ERPD_16April2018_CLEANpdf




784 httpsdataworldbankorgindicatorSPURBTOTLINZSlocations=MZ

785 httpswwwglobalfueleconomyorgblog2018septembermozambique-fuel-economy-workshop-considers-policies-for-cleaner-more-efficient-vehicles


787 httpsclubofmozambiquecomnewscapital-of-mozambique-has-one-car-for-every-four-people~text=Despite20the20congestion20crisis2C20the20172C20302C00020cars20were20purchased

788 httpswwwieaorgdata-and-statisticscountry=MOZAMBIQUEampfuel=CO220emissionsampindicator=CO220emissions20by20sector

20 to the private sector 2 to the provincial govern-ment 4 to the district government and 4 to Gileacute National Reserve to be reinvested in sustainable manage-ment practices781 Meanwhile the PROGIP-CD is meant to reduce illegal logging and mining in Quirimbas National Park as well as promote sustainable practices in agricul-ture timber extraction and in charcoal production782

To support these programs the World Bank has also con-tributed $300 million in total since 2013 to ongoing policy reform efforts such as a the revision of its policy and legal frameworks the creation of a new institution for forest law enforcement a moratorium on new forest concessions and a ban on log exports as well as helped connect Mozambiquan authorities with multiple sources of DFI fi-nancing783 Thus the forestry sector appears to have more large-scale sources of grant funding to support goals of transitioning to more sustainable forest practices


Although Mozambiquersquos rate of urbanization is low at 365 in 2019 the country could still benefit from clean transportation and green urbanization strategies that take climate change into account784 The transportation sector has seen rapid growth and even during the 2016 financial crisis the national car fleet continued to grow785 Motorcycles are also a key growth area as they repre-sent 11 of Mozambiquersquos vehicle fleet with imports still increasing786 The nationrsquos capital is experiencing heavy congestion with one car per every four residents (com-pared to one car per every 45 residents elsewhere in the country)787 Although emissions from the transportation sector are low (4 Mt of CO2 as of 2018) this figure could grow as more Mozambiquans acquire personal vehicles788


Local air quality is also a concern in large cities with growing use of personal vehicles The main policymak-ing body for transport ndash the Ministry of Transport and Communications ndash and the Ministry of Mineral Resources and Energy have both expressed interest in switching to cleaner vehicles either using electricity or natural gas789 790 There are a few existing private sector initia-tives to promote clean transportation such as the com-pany Mozambikes which uses local labor to assemble bikes from imported parts and sells them at low costs to Mozambiquersquos poorest inhabitants791 Nevertheless this sector does not appear to be a major priority for Mozambiquersquos climate change agenda in the near term given the lack of financing solutions and programs avail-able to support clean transportation

Greensustainable urbanization however may rank higher in Mozambiquersquos climate priorities Mozambique is vulner-able to floods and violent storms These disasters pose a particular threat to its low-lying cities such as Beira as seen through the 18 million people affected and $773 mil-lion in damages caused by flooding from Cyclone Idai in 2019792 However over 60 of Mozambiquersquos population is predicted to live in urban areas by 2030793 Thus the main policymaking body for urbanization ndash the Ministry of Public Works Housing and Water Resources ndash is current-ly working with USAIDrsquos Coastal City Adaptation Project (CCAP) to expand the uptake of resilient construction techniques794 In addition the World Bank has funded the rehabilitation of a storm drain system in the city of Beira through a $120 million credit which has helped reduce the risk of flooding by 70795 Despite these efforts Mozambique appears to lack a fully coordinated policy to address the dangers of climate change to its cities and therefore has not invested the necessary funds to make systemic changes in this sector

789 httpwwwxinhuanetcomenglishafrica2019-1107c_138537188htm


791 httpsseedunoarticlesblogbringing-mobility-to-mozambique-s-poorest

792 httpsnewsunorgenstory2019051039381

793 httpswwwafdborgfileadminuploadsafdbDocumentsGeneric-DocumentsTransition_Towards_Green_Growth_in_Mozambique_-_Policy_Review_and_Recommendations_for_Actionpdf

794 httpswwwurbanetinfoclimate-resilient-housing-mozambiques-coastal-cities

795 httpswwwworldbankorgennewsfeature20180605helping-mozambique-cities-build-resilience-to-climate-change


As Mozambiquersquos energy sector continues to move towards a more open and efficient market with efforts to support increased private sector participation a NCCF andor a green finance facility would be an appropri-ate and timely intervention to support the scaling up of renewable energy The country has continued to leverage support from international organizations to develop more robust policies and to seed pilot projects to diversify the energy mix Given the countryrsquos geographic and environ-mental renewable energy potential especially for solar a foundation for progress has been established The energy sector should be prioritized given the potential to shape its growth and the opportunity to leverage recent initiatives towards renewable energy project development

Similar to the energy sector the agriculture sector is a significant focus of Mozambiquersquos development strategies Although there has been less international involvement in the agriculture sector (relative to the energy sector) climate smart agriculture is a key area of interest for the government Existing government frameworks and the various pilot programs outlined earlier are all consistent with the potential for an NCCF or green finance facility However it should be noted that many of these initiatives and plans are in early stages of implementation and more specific market direction needs to be developed

As for the other five countries discussed in this report the following criteria were considered in the identification of priority sectors






Energy as a priority sector

As noted earlier Mozambiquersquos electricity generation has been dominated by hydropower with dependence on hydroelectric power plants representing over 90 of the total primary energy supply796 With the discovery of natural gas reserves the country has focused investment on development of large-scale natural gas power plants Natural gas production has increased by 53 per year on average since 2004 and has represented an increasing proportion of the countryrsquos export revenues797 Three new natural gas projects representing approximately 335MW of generating capacity have been implemented with power sold to EDM With these projects and the pipeline of new natural gas projects the countryrsquos energy mix is shifting away from its dependence on hydropower and Cahora Bassa The government has also started to recognize the importance and benefits that renewable energy can offer to meeting the electricity demands of rural areas where off-grid renewable energy projects and distributed energy systems will be critical to closing the electrification gap

Mozambique is ideal for renewable energy generation particularly solar given the countryrsquos high potential on solar radiation As of 2017 15MW of solar capacity had been installed More recently 41MW from two photovol-taic power plants are underway one PV power plant in Mocuba and another in Metoro In terms of other renew-able energy sources wind generation is being considered and viability studies are being conducted for windfarm sites in Namaacha Manhica and Cahora Bassa ndash repre-senting a total potential capacity of 90MW798 According to the FUNAE published resource ATLAS the total overall potential for renewable resources is 23026GW ndash the vast majority of it attributed to solar potential The ATLAS also includes 189 potential locations for grid-connected renew-able energy power plants799 Mozambiquersquos manufacturing and infrastructure sectors are also capital intensive where increased private investment is needed De-risking private sector investment to support green industrialization would build sustainable economic structural transformation and

796 httpswwwgloballegalinsightscompractice-areasenergy-laws-and-regulationsmozambique




generate more employment while also meeting climate change goals


Although Mozambique has made progress in recent years towards improving the legal and operating environment for new energy projects a number of challenges remain in the market that impact participation of the private sector The following complications impact private developers and across a range of energy projects under consideration

xWeak Offtaker ndash EDM serves as the sole off-taker for all generation projects and has a broad role that monopolizes the energy sector in Mozambique The electricity utilityrsquos weak financial state has implications for the sector that include

xx Lack of financial capacity to maintain and upgrade the transmission linesxx Poor credit history and dominance as a power off-

taker results in difficulties for project developers to access financing (debt and equity capital) and notablyxx Insufficient capacity of the government to implement

development plans for the grid connection of new renewable energy projects

xAccess to Finance and Cost of Financing ndash From the perspective of project developers access to finance at affordable rates from local financial institutions is a significant challenge Part of the issue is linked to EDMrsquos monopoly as the only power off-taker but other factors contribute to the high cost of financing These factors include a lack of capacity within local banks to assess renewable energy projects and related risk as well as a lack of incentive for banks to take risk given the attractive rates of return offered by government-backed securities

In spite of the various international donor backed programs that have been implemented to stimulate renewable energy project development local private developers face difficulties in meeting either the requirement for co-financing to access grant funding or the need to have secured early stage capital from


other sources to participate in challenge fund designed programs In many cases it is the larger international players that benefit from these grant programs and results-based financing mechanisms as opposed to local developers (the difficulties associated with the repatriation of funds to be discussed later in this report)

With relatively high cost of funds project developers are unable to structure commercially sustainable projects They also face the risk that as tariffs are increased these higher costs will be passed down to the electricity end-user The flip-side to this scenario is that the national tariff rates remain relatively stagnant which further prohibits private developers from pursuing smaller scale projects that are cost prohibitive to develop because of their size

Local banks require interest rates as high as 30 per annum and only give tenors that are considered to be too short for mini-grid projects Typical loan tenors are up to five years but given the market dynamics for mini-grid systems private financing of up to ten years is needed

xCurrency Terms and Convertibility ndash Mozambique has historically had strict laws around the repatriation of funds which has made it complex for international actors to participate in business activities in the country However recent changes to the law in 2018 appear to have facilitated greater flexibility and less bureaucracy800 Despite the positive change it is advised to monitor these regulations closely as they could have negative effects on international interest in the market

Private developers continue to seek to negotiate PPA terms in hard currency but recent changes have either been adopted or are in the midst of being adopted that would allow EDM to convert all future contract obligations to Metical Given the complexities that accompany this type of change it is suggested that more research into this matter be conducted to better understand the market implications

800 httpswwwpwccozaenassetsdocumentexchange-control-alert--revision-to-the-exchange-control-regulationpdf

801 httpsconstructionreviewonlinecom201907mozambique-to-receive-us-99-7m-for-temane-maputo-power-line-project




xGrid Infrastructure ndash Mozambiquersquos national grid is divided into three separate sub-grids which do not interconnect or connect the countryrsquos largest power generation source ndash the Cahora Bassa hydro plant ndash to main consumption centers With the recently announced 560 km transmission line project supported by the Islamic Development Bank and others Maputo will be connected to Tete Province through the construction of the Temane-Maputo power line801 Announced in July of 2019 the scale of this project represents an important step to improving and expanding the national grid infrastructure

However beyond this initiative is a deeper requirement to upgrade existing transmission and distribution lines to reduce losses and facilitate the connection of new generation capacity including the integration of renewable energy Funding for projects that focus on maintenance and upgrades of the existing grid infrastructure have been limited and are beyond the capacity of EDMrsquos own financial resources Hence there is an opportunity for either grant funding or concessionary financing structures to be designed to specifically focus on these areas

xRegulatory Environment and Framework ndash Regarding mini-grids Mozambique lacks a clear regulatory framework and policies to provide private sector stakeholders the assurance needed to pursue new projects Although the energy law has continued to evolve challenges still exist especially as related to government-issued concession contracts issues of currency (in)convertibility and the inability or absence of much-needed government guarantees802 Furthermore current procedures for securing concessions and licensing for renewable energy projects are complicated and administratively burdensome803

Although reforms to the Electricity Law are expected to simplify current concession and licensing mechanisms the adoption and implementation of these proposed changes have not yet taken place804

xTariff Regime ndash As affordability of electricity in Mozambique is of critical importance tariffs for grid


connected power have not been cost reflective This is driven by the fact that the vast majority of end-consumers have a very low ability to pay In addition EDMrsquos monopoly makes it difficult to negotiate market related tariffs needed to achieve commercial viability805

For mini-grids the historical issue with tariffs has revolved around the lack of a legal framework for the regulation of tariffs for off-grid customers For rural electrification this is exacerbated by the absence of a legal basis for application of the approved public-private partnership laws806 Although MIREME received assistance to design a legal framework for mini grids in the country the draft outline of regulation remains un-adopted These problems have significantly undermined interest in rural electrification projects

The GET-FiT Programme as mentioned earlier is an initiative launched with the support of KfW Development Bank to expedite the development of smaller renewable energy generation projects by (i) supplying tariff viability gap funding (ii) providing targeted technical assistance (iii) providing risk mitigation against off-taker risk and (iv) supporting renewable grid integration support When KfW first considered replicating its GET-FiT model in Mozambique the initiative was originally complemented by Mozambiquersquos MIREME Renewable Energy Feed-in Tariff (REFiT) However the feed-in tariff was only made available for a period of three years and administrative procedures were never approved so investment flows never materialized

In 2019 the REFiT and GET-FiT program concepts were essentially merged GET-FiT is supporting viability studies for 130MW of renewable energy projects namely photovoltaic projects with storage and small hydroelectric power plants with potential for wind and biomass projects to be considered later in the programrsquos life807 With grant funding of only 25 million EUR808 there is still a significant opportunity for new programs to complement this initiative

xConcession and Land titles ndash The ability of energy projects to gain title for land use is a critical issue in Mozambique for developers and financiers While all


806 httpwwweuei-pdforgenrecppolicy-advisorymini-grid-legal-support-to-mireme


808 httpswwwgetfit-mozorgnewsanother-important-milestone-achieved-by-get-fit-programme-in-mozambique


land in the country is owned by the state and cannot be sold or encumbered land use can be granted to private persons and entities under the Direito do Uso e Aproveitamento da Terra (DUAT) system Land concessions in Mozambique are limited to 50 years for hydropower projects and to 25 years for all other technologies809

Several international organizations are already involved in supporting modification of the existing laws that govern land issues around the development of energy projects There is potential that the last round of Electricity Law reforms may simplify these constraints


xProject Preparation Facility ndash Despite progress in the energy sector there is still a lack of capacity across key stakeholders to grow the renewable energy market Many local financiers lack risk assessment experience in the renewable energy sector These financiers are also disincentivized to lend to this sector given more favorable investment alternatives that have lower perceived risk With these financing limitations impacting even later stage projects there is a market need for early-stage project financing solutions including support for pre-feasibility studies project design etc Stakeholders noted that access to alternative flexible and concessionally priced financial products is also needed to support projects reaching ldquobankabilityrdquo Technical assistance and capacity building is also required by other stakeholder groups including government actors and within financial institutions

Leveraging the work and researching the successes of the PROLER program is recommended There may be an opportunity to expand an existing program such as PROLER as opposed to starting a new initiative from scratch

xCapacity Building Programs ndash Regulatory and policy reforms across the energy sector have helped improve the operating environment for private sector actors However there are still challenges related to legal aspects of renewable energy projects such as the lack


of clarity on regulation within the mini-grid sub-sector NCCF funding could be used to provide support to key government agencies such as MIREME and ARENE Given limited resources grant funding is considered an appropriate tool to ensure that next iterations of tariff structures and regulations are conducive to greater private sector participation

Similarly NCCF funding could be directed to the provision of technical assistance and capacity building to support EDM as it remains under resourced Grant funding is also needed by local financial institutions to provide training on technical capacity for analyzing renewable energy projects Although technical support has accompanied a few of the existing programs such as KfWrsquos green credit line to BCI there is still an opportunity to strengthen knowledge around different sizes of projects and across the various renewable energy technologies

xGuarantees ndash Given the weak financial position of EDM government guarantees are sought by project developers and financiers For international stakeholders in addition to a government guarantee further credit enhancements from internationally credit worthy counterparties is also required According to some literature lenders may require a guarantee from an A+ rated counterparty Mozambiquersquos sovereign rating for foreign currency is CCC 810 811

xSources of Concessionary Capital ndash Without intervention from the government or support from international financial institutions the flow of capital from local banks to renewable energy projects will likely remain limited Even with programs such as the BCI green credit line structure from KfW there is still a sizeable gap for access to affordable financing with adequate tenors Given the nascency of the renewable energy sector and particularly of the mini-grid space in Mozambique financing that is affordable flexible in terms and patient in nature is considered crucial

The KfW BCI green credit line has remained underutilized Stakeholders have noted issues with the complexity of satisfying the eligibility criteria and that pricing is still relatively high with inflexible terms Although the pricing of around 15 per annum is more favorable than some of the other market pricing


811 httpswwwfitchratingscomresearchsovereignsfitch-affirms-mozambique-at-ccc-09-07-2020

quoted ie up to 30 per annum this is still too expensive for certain projects especially those projects that are smaller in scale or those that target rural electrification The tenor of the underlying loans is up to five years which in certain cases is not adequate for renewable energy projects given the low tariff rates

Potential Host Institutions or Partners for the Energy Sector

Within Mozambique several stakeholders have been iden-tified as strong potential host institutions or partners for a new green catalytic finance facility or NCCF The energy sector is going through significant change and in some areas a complete overhaul As a result it is recommend-ed to work through existing organizations and ministries involved in the sector is a strong bet for mobilizing kry stakeholders and leveraging existing capabilities

xx Fundo Nacional de Desenvolvimento Sustentaacutevel (FNDS)xx EDMxx Fundo Nacional de Energia (FUNAE)

xFundo Nacional de Desenvolvimento Sustentaacutevel (FNDS) ndash The National Sustainable Development Fund has served as a key implementation intermediary for projects in the energy sector FNDS requires additional capacity building and support but is considered to be a good potential host given the ministries that govern the agency and the fact that its mandate allows it to retain financial autonomy

xEDM ndash Given the utilityrsquos monopoly over the national grid EDM is a critical partner for all energy sector initiatives The organization requires a significant technical assistance and capacity building especially as it relates to renewable energy However the organization has already been structured to facilitate the ramp up of renewable energy projects

xFundo Nacional de Energia (FUNAE) ndash As a public institution with a mandate to promote rural electrification and access to modern energy services FUNAE is a key actor in promoting the adoption of renewable energy technologies The agency has had several successes in implementing renewable energy projects that have improved social services With


established knowledge of rural and remote areas combined with the existing in-house capacity and technical knowledge on renewable energy projects FUNAE could serve as either a host institution or as an implementing partner

Agriculture and Climate Smart Agriculture as a Priority Sector

The agriculture sector in Mozambique is dominated by smallholder farmers and remains informal as a sector Food security in Mozambique is a serious concern for the government especially after several natural disasters increased the risk of food insecurity notably Cyclones Idai and Kenneth in 2019 In addition to the governmentrsquos in-terest in food security there is also a focus on livelihoods and employment in rural areas

The countryrsquos interest in ensuring that the economy is climate resilient is highly relevant to the agriculture sector Rainfall in Mozambique has remained sporadic and the scope of irrigation is limited Average rainfall has contin-ued to decline by approximately 31 per decade and over the same timeframe the country has experienced ris-ing temperatures along with periods of heavier rainfall and severe flooding812 Weather patterns and rain volatility are further impacted by the cycle of El Nino which in 2016 led to severe droughts across the country813

The absence of a government agenda has hindered climate smart agricultural practices from gaining traction and receiving adequate attention given the climate related challenges that are faced by the country While some CSA measures are being applied these have mainly focused on low-input and cost-effective practices814

According to a World Bank report the two main green-house gas emitters in agriculture are livestock production and savannah burning815 To mitigate these sources of GHG emissions practices such as improved livestock and pastures management could help significantly Beyond this there is an opportunity to support adoption of new technologies that enhance farm productivity such as solar powered water pumps or efficient drip irrigation systems

812 httpsclimateknowledgeportalworldbankorgcountrymozambiqueclimate-data-historical





817 httpsmacauhubcommo20190215pt-governo-de-mocambique-quer-chegar-ao-final-de-2019-com-uma-agencia-bancaria-em-cada-distrito

To date there has been limited focus from small-scale farmers for adoption of CSA practices due to low access to knowledge technology and appropriate financing mechanisms and products816 The agriculture sector has also been slow to explore CSA investments because of limited examples of demonstrated benefits for livelihoods socio-economic improvements and the environment

As the agriculture sector remains in nascent stages of growth it is well positioned to benefit from the support of international development organizations and ODA who can help build the policies and agenda needed to spur adoption of CSA practices Given the limited attention and knowledge in-country on CSA future investment and fo-cus will remain low without external intervention and grant funded programs

Complications amp Opportunities in the Agriculture Sector

The sector remains challenged for the reasons highlighted above but there are also various opportunities to address market barriers particularly if these interventions are un-dertaken early The fact that CSA is in early stages would allow Mozambique to benefit from existing CSA experi-ence and practice in other countries and regions Some of the key constraints that have been identified through stakeholder interviews and literature review are discussed below

xAccess to Finance ndash Agricultural inputs for CSA typically have high associated costs This is particularly true for technology inputs such as efficient irrigation systems or renewable energy powered equipment In Mozambique smallholder farmers have limited access to financial services credit and insurance products to transition to new farming practices while managing the downside risk associated with transition periods and financing

Financial inclusion especially in the rural areas of the country has been supported by initiatives such as Mozambiquersquos One District One Bank project with funding from the Ministry of Culture and Tourism and FNDS817 This project is an important first step toward


ensuring that remote areas have access to banking services as well as credit However this 2019 initiative is likely to be negatively impacted by the global pandemic and will require additional support to ensure that product development is aligned with market needs

xLimited Market Benefits of CSA ndash As the agriculture sector in Mozambique is fairly informal and the government has not yet built an enabling environment through its development agenda the lack of a track record highlighting the benefits of CSA practices has been a constraint for the sector This lack of demonstrated market benefits has slowed scaling of CSA by both farmers and private sector investors The limited technical knowledge and low access to technologies have dissuaded local financial institutions from extending credit to the CSA sector This also exacerbates the underlying capacity of banks to understand the risk of agricultural projects

xLack of Pipeline of Bankable Projects ndash There is a clear role for the private sector to play in the agriculture sector but a key constraint to overcome is the risk appetite for local banks Given the limited traction of CSA in the market an initial focus should be placed on incentivizing banks to finance pilot projects Partially funded through grants or credit lines these pilot projects can help the sector develop and prime the banking sector to scale up their own capacity Although there is a lack of bankable projects today this scenario can be overcome with financing structures that limit risks associated with early stage projects New technologies and business models can be tested at a smaller scale and then expanded and replicated as appropriate

xFinancial Product Design and Insurance ndash Similar

to what has been noted for other countries in this report investment in CSA is considered to be cost prohibitive in Mozambique There are high upfront costs associated with transition while the transition periods themselves create uncertainty for farmer incomes Given the high levels of perceived risk in the agricultural sector overall the lack of investment is unlikely to change without innovative solutions and a review of the existing financial products and insurance products

Agricultural climate risk insurance and concessionary capital terms for small-holder farmers are two primary areas where further research needs to be done Financial products should be structured to have cash flow-based repayment schedules especially given the changing climatersquos impact on farming production and yield

Potential Interventions for the Climate Smart Agriculture Sector

xTechnical Assistance and Capacity Building ndash Technical and capacity building is needed at the government level to support the creation of clear development plans targets and direction for the sustainable growth of the agricultural sector Policies and institutional frameworks need to be structured and incentives may have to be used to encourage private sector participation The private sectorrsquos role includes financing of projects and development of the range of new climate smart technologies that are appropriate for Mozambique

xEnabling Environment through Policy and Planning ndash Potential interventions to support a growth path for CSA practices include funding for policy development creation of more robust development plans that integrate incentives for transition and support for pilot projects to test new technologies and business models In addition the World Bankrsquos CSA report on Mozambique highlighted the lack of extension services available to farmers which are important channels for knowledge exchange and training Grant funding through a NCCF for extension services would support adoption of new technologies

xConcessional and Early Stage Project Financing Alternatives ndash Financing for early stage project development and pilot projects will likely need to come from grant funding or through blended finance vehicles that seek to leverage catalytic and concessional donor capital It is unlikely that this early stage funding will flow from banks and local financial institutions due to perception of risk and factors such as high overnight lending rates As outlined earlier there are a number of initiatives in this arena (with the largest funding support coming from the GEF) and these programs should be reviewed to identify where they can be replicated and amplified Given the fact that Mozambiquersquos natural


environment is so varied it is likely that unique models will be needed for each region tailored to the local environment

xCombined Approaches for CSA and Renewable Energy ndash Lastly there is an opportunity to merge strategies that serve both CSA and the renewable energy sectors The objectives of a new green finance facility or NCCF can serve combined outcomes through technologies such as solar powered farm equipment water pumps and providing general access to electricity in rural areas through the installation of distributed energy systems

Potential Host Institutions or Partners for the Agriculture Sector ndash CSA

Some of the key partners or host organizations to consid-er when designing a new green catalytic finance facility or NCCF include

xx FNDSxx Ministry of Agriculture and Food Security (MASA)xx Ministry of Land Environment and Rural Development

(MITADER)

Given the nascency of the CSA sub-sector and its less formalized institutional structure it is recommended that any new programs or vehicles work through existing orga-nizations and ministries in Mozambique

xFNDS ndash Similar to the energy sector FNDS represents a strong potential partner or intermediary to manage and disburse funds related to sustainable development initiatives FNDS is an independent public body with administrative and financial autonomy and was created under the sectorial tutelage of MITADER and under the financial tutelage of the Ministry of Economy and Finance The organizationrsquos mandate facilitates its authority to mobilize and manage financial resources (including international funding) to be ldquoused for sustainable development policies and to promote and support such policies through projects and programs linked to improved environmental management climate change mitigation the sustainable management of forests biodiversity conservation and land planningrdquo 818 The FNDS is already involved in land use related




projects including a REDD+ initiative which is being carried out in coordination with the Ministry of Land Environment and Rural Development

xMinistries (MASA amp MITADER) ndash Other key partners focused on CSA adoption planning include several government ministries including the Ministry of Agriculture and Food Security (MASA) the Ministry of Land Environment and Rural Development (MITADER) Mozambique Agriculture Research Institute (IIAM) Ministry of Economy and Finance (MEF) National Council on Sustainable Development (CONDES) National Metrological Institute (INAM) National Institute of Disaster Management (INGC) and National Institute of Irrigation (INIR) among others819 However the entities that should be prioritized given their existing mandates include the Ministry of Economy and Finance MITADER and MASA As the National Directorate for Monitoring and Evaluation (under the Ministry of Economy and Finance) is the countryrsquos representative to the Green Climate Fund coordination with this entity is considered crucial MITADER and MASA are the main government ministries responsible for rural development and agriculture and both have already integrated CSA related investments into their programming820

In terms of the private sector partnering with financial institutions that are involved in the One District One Bank project (such as Millennium BIM) will help improve access to financial services and products given the focus on increasing banksrsquo footprint to better serve remote areas

III CONCLUSION

Both a catalytic green finance facility and a NCCF could prove useful for Mozambique With current market dynam-ics a catalytic green finance facility seems most appro-priate for the clean energy sector to address the financing challenges for both grid connected and off-grid solutions Off-grid areas will still need additional support to improve the operating environment but given the progress made to date the need for a green finance facility to accelerate such progress is imminent


Grant funding through a NCCF is applicable to both the energy and agriculture sectors Within energy grant funding will be helpful for the poorest regions or districts across the country where the tariff gap to develop com-mercially viable projects is largest For the agriculture sector (with a specific focus on the adoption of CSA prac-tices) grant funding should be the primary tool used to develop the sector from the ground up The few programs that have been implemented to date provide a good base from which to launch complementary initiatives but the amounts of grant funding that have been directed to this area remain relatively small in scale

In summary Mozambique is in much earlier stages of growth in both the energy and agriculture sectors relative to other countries discussed in this report As such the focus should be on incubating new models and ad-dressing risks that are common to early stage projects Mozambique also faces key challenges related to mobiliz-ing domestic and international financing for infrastructure and related capacity constraints as required to effectively implement such projects Some of the key constraints that can be addressed through the establishment of a catalytic green finance facility and NCCF include



guarantee structures that can stimulate private sector participation and toxx Establish a project preparation facility to support early



7 | Overview of process to design form capitalize and launch Green Banks

alongside National Climate Change Funds

OVERVIEW OF PROCESS TO DESIGN FORM CAPITALIZE AND LAUNCH GREEN BANKS | 139

T he core elements and considerations involved in Green Bank and NCCF design are summarized below It is important to note however that effective Green Bank formation needs to reflect a country-driven

approach specific to market conditions and the needs and requirements of local host organizations partners and capital sources There is no one-size-fits-all approach to Green Bank formation

1) Political Champion amp Host Institution

A Green Bank andor related NCCF effort must be based on some level of national interest from relevant energy environment or finance agencies andor the associated political leadership It is critical that a high-level national or institutional champion be established early in the process to provide legitimacy traction with other key stakeholders and with sources of public and private capitalization This process then needs to identify an effective host organi-zation that is fully committed to the mission of the Green Bank and has the organizational capacity to form launch implement and sustain the Green Bank mandate and operations over time

The essential characteristics of a Green Bank or NCCF host organization include the following as noted below The Green Bank can be placed in a new purpose-built entity through a variety of structures or it can be placed within an existing ldquohostrdquo institution that has a consistent mission alongside the financial and market capacity to achieve the desired outcomes of the Green Bank

It is important to note that based on the requirements of-ten associated with prospective Green Bank capitalization it is often necessary to work through an existing institu-tion rather than through a newly formed structure While a purpose-built Green Bank entity can be more precisely designed to meet and implement the desired mission and

mandate capital sources are generally uncomfortable with the risk associated with placing loans in a new or ldquogreen-fieldrdquo institution with no financial track record established balance sheet or management team in place And it is difficult if not impossible to hire a management team to help provide needed investor confidence in advance of full Green Bank capitalization

The essential characteristics of a Green Bank host institu-tion or new stand-alone entity include the following

x The host institutionGreen Bank entity must be aligned with the Green Bankrsquos mandate mission and objectives including a gender-responsive approach x The host institutionGreen Bank entity must have strong buy-in and championship for the Green Bank at the highest levels of institutional leadershipx The host institutionGreen Bank entity must have (or be willing to create) the necessary financing capacity that is specifically aligned with relevant green climate and sustainable development sectors x The host institutionGreen Bank entity must have a suitable Public-Private Partnership type of structure capable of using a mix of public and private funding to leverage and co-invest with commercial partners at the project levelx The host institutionGreen Bank entity must be able to receive capitalization from various type of investment partners including debt equity and guarantees from development partners climate funds sovereign funds and private andor commercial capital x The host institutionGreen Bank entity needs to be able to work within any existing sovereign debt constraintsx The host institutionGreen Bank entity requires political and economic stability and must have a low or no incidence of corruption and allow the Green BankNCCF to be protected from political interferrence x The host institutionGreen Bank entity must create or put in place all necessary legal structures


x The host institutionGreen Bank entity must be able to offer affordable financing (after pricing in administrative costs risk premium currency hedging etc)

Green Banks andor NCCFs Through a New or Existing Institution

Should a Green Bank be created through a new purpose-built entity or within an existing ldquohostrdquo institution

xA new purpose-built Green Bank (as a public entity private corporation or a public-private partnership) can be precisely designed to meet and implement a focused mission and mandate However capital sources can be uncomfortable with the risk associated with placing loans in a new or ldquogreenfieldrdquo institution with no financial track record established balance sheet or management team in place

xCreating a Green Bank through an existing institution can be effective and more achievable in terms of attracting capital and implementing operations based on an existing financial track record established balance sheet and management team It is critical however that Green Banks created on this model have a focused mandate in line with Green Bank objectives and the requirements of capitalization sources

2) Project Pipeline amp Market Gaps

Identifying the existence of specific market gaps that are relevant to bringing green inclusive and climate related in-vestment to scale is an essential first step towards Green Bank development Market gaps must be clear across a range of stakeholders for Green Bank investment demand to develop If there are no obvious shortcomings in the way green and low-carbon markets currently operate and scale it is hard to justify the creation of a dedicated finance entity and research and discussion with key stake-holders is required to determine how a Green Bank can add value to scaling green and climate related investment in any given country or market

In addition to noting market gaps Green Bank develop-ment requires identification of specific investment op-portunities priority sectors for Green Bank investment and a potential pipeline of projects within those market sectors that is also gender-inclusive The size sectors and specifics of this projected project pipeline are critical to securing capitalization from potential Green Bank inves-tors and creating the financial model for initial operation of the Green Bank A detailed prospective project pipeline analysis should be based on examining the current green and climate related market size and market potential in the context of existing policies programs national plans and institutions It also involves a focused interview pro-cess to identify the specific market barriers across market participants

The requirements for determining market gaps and an adequate project pipeline include the following

x Priority green and climate related sectors that can be brought to scale through financial interventions that address specific market gaps must be clearly identifiedx An adequate and inclusive project pipeline must be identified for projects that are consistent with the Green Bank mandate mission and objectives and these projects must be bankable and or commercially viable with relevant credit enhancementsx Local or regional commercial banks must express interest and capacity to participate in co-financing projects in priority sectors and in the initial pipeline with the addition of credit enhancements by the Green Bankx There must be an adequate level of project flow from developers who are seeking local currency financing for bankable projectsx A sufficiently strong and durable ldquoenabling environmentrdquo is required for initial priority sectors (eg clear regulatory schemes existence of complementary grants to bring down prices etc)x The project pipeline must be in sectors where there is clear and sufficient market demand

3) Capitalization

Identifying and engaging sources of public and private capitalization including equity debt and concessional finance is critical for Green Bank creation Significant sources of Green Bank capitalization include funds from domestic sources and development partners Potential sources of capitalization funds include


xClimate funds such as the GCF GIF othersxDevelopment partnersxDomestic co-investors

xx National development banksxx Sovereign wealth fundsxx Pension fundsxx other appropriate initiatives or funds

xPhilanthropyxDiaspora and high net worth individuals

Capital requirements usually begin with an assessment of

1 Mission and mandate and whether the Green Bank is a match with investor or sponsor goals

2 The structure of the Green Bank so it fits targeted investor investment criteria and

3 An assessment of risk by potential Green Bank investors or sponsors taking into account key factors such as a Green Bank andor host institutionrsquos financial track record established balance sheet green investment capacity and experience and management team

The pathway that funds must take to land in a Green Bank is also an important structural factor to take into account If funds must flow through the government then Ministry of Finance support and sovereign debt limits come into play If funds are sought from the Green Climate Fund then a partnership with a GCF Accredited Entity must be created that is aligned with the proposed Green Bank structure and can fit within country headroom and exposure limit for that partner institution If domestically sourced funds are engaged their requirements need to be matched to the Green Bank structure In all cases specific sources of capital can only flow to specific types of legal structure (public private or PPP type) and must be aligned with the Green Bank mission and mandate and also with the nature of the project pipeline across the identified priority sectors

The requirements for Green Bank capitalization include the following

x Capital must be consistent with the Green Bank andor host institution mandates and missionx Capitalization partners must be comfortable with the Green Bank or host institution in terms of risk assessment investment mandate and institutional capacity

821 httpcoalitionforgreencapitalcomwp-contentuploads201707Green-Banks-in-Emerging-Marketspdf

x Capital must be provided on terms that will allow financial products to be effective and affordable This often ndash almost always ndash requires a blended finance approach in addition to a mix of FX and local currency fundingx To be sustainable over time future capitalization prospects should be identified from diverse sources that allow for the viable and continued operation of the Green Bankx Capital needs to either be provided in local currency or an affordable hedging option needs to be available that is consistent with affordable pricing by the Green Bank

4) Market-Fit Financial Products

Green Bank formation includes the design of innovative fi-nancing solutions that can address market gaps and sup-port opportunities to scale up targeted green and climate related sectors Green Bank product offerings must be based on identified market needs capabilities and chal-lenges and on a thorough review of low-carbon markets and associated project pipeline across priority sectors (such as renewable energy smart agriculture biomass water amp sanitation clean transportation and green urban-ization) This process must identify the challenges faced by the local financial market to support green projects in order to determine viable tailored and sustainable financ-ing solutions that can be implemented by a Green Bank Green Bank product offerings can also draw from Green Bank best practice as established around the world821

Overall a Green Bankrsquos innovative financing solutions should be designed to support the development of green projects while building local green finance capacity Product offerings have four key objectives i) help green projects overcome challenges and open new financing opportunities ii) crowd in private investment with a par-ticular focus on mobilizing domestic resources iii) increase adoption of green technologies and iv) build overall green financing capacity across the target market

There are five key principles that generally guide financial product development for Green Banks

xx Additionality does the product address key market challenges identified in the market including filling gaps in sectors where projects struggle to access affordable financing


xx Impact will the product help achieve the Green Bank mandate while creating a measurable impact in the market (both climate amp development) xx Ease of implementation will it be feasible to

implement considering the Green Bank host institutional status and the countryrsquos financial market needs and availability of skills xx Leverage will the product be able to leverage and

engage private commercial investments at the project level or via demonstration effectxx Best practice lessons learned from Green Banks

implementation around the world Green Banks increase investment and act as innovators in their local markets to mitigate risks through financial solutions that can be replicated by other market actors

Finally the Green Bank must identify the market delivery mechanism or go-to-market channel through which prod-ucts will be deployed

Based on these considerations the requirements for Green Bank financial products include the following

x A suite of initial catalytic financial products with ldquoproduct-market fitrdquo specifically tailored to support the near-term priority project pipeline across relevant sectorsx Institutional and staff capacity to develop additional market-fit financial products and pivots to address financing needs for emerging project pipeline across relevant sectors as they developx An initial and evolving suite of financial products that meet the five criteria (as noted above) that are essential components of Green Bank purpose and mandate

xx Additionalityxx Impactxx Ease of Implementationxx Leveragexx Best Practice

5) Alignment with National Goals and Targets

Green Bank formation must be based in an assessment and understanding of all relevant national policy and planning goals for green and related low-carbon and sus-tainable development sectors (with an inclusive focus) A clear picture of existing national goals and related targets for specific sectors is required to determine if government priorities can be served by a Green Bank and to identify priority sectors and related investment needs A countryrsquos policy and enabling environment across relevant sectors and Government agencies is also a key consideration for Green Bank development

An assessment of national goals plans policies and targets will lead to identification of the following essential factors

xx Sectors aligned with national green growth objectivesxx Technologies that are priorities given local needs and

market conditionsxx Sectors that are likely to have growing market demand

and a pipeline of commercial or ldquonear-commercialrdquo bankable projects with ability for private co-finance to be catalyzedxx Sectors with clear regulatory frameworks and

supporting environment (including clear market rules and frameworks and the availability of project preparation support and supplemental grants where necessary

Based on these considerations Green Bank alignment with national goals plans policies and targets can be assessed through the following indicators

x Green Bank alignment with NDCs and national climate goalsx Green Bank alignment with relevant Sustainable Development Goalsx Green Bank alignment with other relevant national plans and targets across priority sectorsx Green Bank alignment or complementarity to existing grant or finance programs designed to advance national plans and targetsx Green Bank alignment with sectors with clear regulatory frameworks and effective enabling environment


6) Project Preparation amp Grant Capacity

Any Green Bank requires a robust capacity to develop the flow of bankable projects across target sectors and to sustain that flow of projects over time In addition to market-fit financial products a Green Bank gen-erally needs to be formed with or alongside a Project Preparation Facility (PPF) that provides reimbursable and non-reimbursable grants to support early-stage project development and potentially direct funding to eligible proj-ects An NCCF or Green Fund is often the most appropri-ate way to create an effective PPF and related grants facil-ity to compliment the financing activities of a Green Bank A NCCF can be created as a new stand-alone institution or within an existing agency or country-based institution The purpose of a PPF can be focused on to helping proj-ects transition ldquofrom feasibility to bankabilityrdquo and assist projects to secure commercial finance through the Green Bankrsquos lending arm Where a Green Bank provides PPF grant funding it is generally intended to serve a ldquocatalyticrdquo role at an early stage for transactions that may otherwise be too risky or complex to pursue Project preparation grants are intended to support feasibility and technical studies legal contract development and other activities that contribute toward a specific projectrsquos viability As consistent with a Green Banks mission and mandate PPF support should prioritize early-stage high- impact innova-tive projects and businesses that have a high probability of successful completion based on developer track record and sound business plans

The PPF itself can be implemented through a variety of structures It can be integral to the Green Bank as a whole created alongside through a coordinated partner institution or be placed in an adjacent unit of the Green Bank host institution In any case close coordination be-tween the PPF and the credit side of a Green Bank is es-sential to ensure that the PPF invests in projects that can move successfully to bankability and Green Bank invest-ment It is also critical to develop a long-term sustainability plan for the PPF as a grants-based facility

The PPF requires a clear list of project eligibility criteria that are aligned with those of the overall Green Bank and its investment guidelines These eligibility criteria should include definition of eligible green project types eligible project size demonstrated potential for mobilizing private investment that the project is a proof-of-concept (first time that the project has been done) and an indication

that a project faces difficulty in securing access finance etc

Green Bank PPFrsquos generally focus on funding activities in the following primary areas

xx Technical and Feasibility Studies providing project analysis design and studies to appropriately structure financing xx Grants to reduce project cost and increase bankability

particularly for those that are ldquofirst-of-a-kindrdquo and have significant proof-of-concept or ldquodemonstration effectsrdquo for the market xx Grants to mitigate financial risk and facilitate co-

financing from commercial banks For example grants provided as partial cash collateral to projects where excessive collateral is required by commercial banks

Based on these considerations a Green Bank Project Preparation Facility should exist and be designed to serve the following functions

x The PPF should be designed to bring potential projects from feasibility to bankabilityrepeatabilityx The PPF should have a grant program to work alongside financing programs to support project preparation technical feasibility studies and to provide grants as needed to make projects financeable

7) Market Outreach Strategy

The impact of any Green Bank is closely related to its market outreach capacity and ability to build a robust and diverse project pipeline across all target sectors To effec-tively expand market reach beyond business-as-usual a Green Bank requires a targeted marketing and commu-nications strategy designed to support its mandate and investment objectives This outreach strategy also needs to be dynamic ndash tailored to the initial phase of launching the new Green Bank and then evolve to support the con-tinued operations of the Green Bank over time as mar-kets change and grow To this end the market outreach strategy should be reviewed by on an annual basis to keep pace with target markets and pipeline development

Key objectives of a market strategy should include

1 Support for building near termlonger term project pipeline

2 Market outreach to inform product offerings


3 Green Bank visibility and communicating impacts and results in support of future capitalization and pipeline development

4 Build knowledge and capacity for green lending with public and private market actors including project sponsors and co-financiers

5 Gender-inclusive market outreach and project development

Market outreach program components should include several elements including (1) staffing to support direct in-teraction with market participants (2) branding to support visibility and understanding of the Green Bank and specific programs and (3) web presence to support visibility and market engagement

Based on these considerations a Green Bank initiative must include the following core elements

x Green Banks require a market-specific outreach strategy designed to engage private sector co-investors develop the pipeline of potential CFF projects and expand future capitalization

8) Start-up Funding Staffing amp Plan for Sustainability

A Green Bank requires sufficient funds to establish the initial leadership team create and implement a marketing strategy develop operational financial products establish the deal origination and review teams and conduct all monitoring verification and reporting procedures As it re-quires a period of time to bring deal flow to self- sustaining income levels start-up funding requirements include several years (depending on market dynamics and pipe-line development) of early-stage opex funding to cover operational costs These start-up funds can be provided via grants to the Green Bank which are secured alongside initial capitalization from climate funds development part-ner grants or other sovereign sources

In addition to early-stage start-up funds Green Banks are often designed so that in time they become financially self-sustaining Based on an integrated financial model management fees and return expectations need to be de-signed to cover the ongoing operations of a Green Bank so it becomes a break-even operation vs over reliance on ongoing infusion of operating funds

Establishing the leadership team is also an essential early-stage component of Green Bank formation Whether placed at an existing institution or structured as a new stand-alone entity a recruitment process andor selection of the Green Bank CEO-equivalent is essential for effective launch team building and securing capitalization Funding to support the recruitment process and salaries for the CEO and senior management team through the early years of operation are also necessary

Based on these considerations a Green Bank initia-tive must include start-up funding and financial plan for self-sustaining operation as follows

x Early stage opex funding is required to support the initial period (3-5 years) of Green Bank operation including recruiting and hiring the initial leadership or technical team create and implement a marketing strategy develop operational financial products establish the deal origination team and conduct all monitoring verification and reporting proceduresx A Green Bank requires an integrated business plan and full financial model that are designed to support self-sustaining operationsx To support viability over the long-term a Green Bank can also set a strategic plan for additional rounds of re-capitalization over timex Selection of a CEOGreen Bank Director with appropriate experience and leadership abilities to drive the catalytic market role of the Green Bank and establish operations is requiredx Hiringappointing a gender-inclusive leadership team with expertise in all relevant areas including product development and deployment market outreach and pipeline development project finance deal origination monitoring and evaluation interface with private sector co-investors is required

9) Monitoring Verifying amp Reporting

Green Banks require an integrated system of monitoring evaluation and reporting to ensure financial diligence and that a Green Bank meets the requirements of its climate SDG and related mandates When placed at an existing host institution these monitoring and reporting require-ments need to be integrated and consistent with those of the host institution Monitoring and evaluation procedures must also be consistent with the specific requirements of all capitalization partners to the Green Bank


Broad monitoring and reporting requirements include the following major elements

xx Project level monitoring xx Fund level monitoring xx Project level evaluation xx Fund level evaluation

Based on these considerations a Green Bank initiative must include a MRV program as noted

x Integrated monitoring evaluation and reporting systems to ensure both financial diligence and that the Green Bank meets the terms of its climate SDG and related mandates x MRV requirements that satisfy the needs of Green Bank capitalization partners and co-investorsx MRV requirements that are integrated and consistent with those of the host institution where applicable

MRV procedures can be a sginficant drag on the speed and agility of Green Banks or Green bank partners ndash therefore any MRV approach should be designed to avoid unnecessary extras steps and onerous reporting require-ments at the project level An important goal of any green finance institution should be an MRV policy that balances the needs for transparency and accountability with its role as a dynamic financial institution that works well with the private sector


8 | Conclusions and Recommendations

CONCLUSIONS AND RECOMMENDATIONS | 147

Based on the high-level overview of country-specific market dynamics existing funding and financing programs and market gaps and priorities provided through this multi-country scoping project a combination

of Green Banks adjacent to National Climate Change Funds have strong potential to be an effective and inclusive way to help scale private investment in support of national climate and sustainable development goals in the six study countries A combination of catalytic climate finance facilities alongside green grant programs focused on the low-carbon and sustainable development sectors has the potential to support greater private sector participation and to more effectively mobilize support from global development partner institutions

While specific market conditions vary two sectors stand out as priorities across all of the study countries including renewable energy and climate smart agriculture In addition green cities infrastructure is a potential priority sector particularly in Tunisia Determining the scale and nature of investment needs across these sectors would require an in-depth market analysis to identify and quan-tify project pipelines for each sector and in each country This market analysis would also further inform the nature of market barriers and the specific market interventions financial products and related grant supports that are needed in each to unlock private investment and leverage climate investment in an inclusive approach

Based on this initial assessment of country needs ob-jectives and institutional capacities it appears that near-term Green Bank exploration alongside National Climate Change Funds would be appropriate in Ghana Tunisia Zambia Uganda and Benin In Mozambique it seems best to start with forming a National Climate Change Fund to provide initial grant capacity and then to poten-tially grow into an expanded green finance capacity In all

countries key issues such as capitalization potential debt sustainability and interaction with existing program and institutions will need to be addressed

In all cases the exploration of new potential climate finance capacity should be integrated with utilization (or expansion) of existing National Climate Change Funds as grants remain an essential complement to financing in all study countries (and in general regardless of a countryrsquos level of development) In addition potential Green Banks in the six countries need to be integrated with an effective Project Preparation Facility (PPF) as an adequate and robust project pipeline is essential to effectively utilize any financing capacity

The next steps towards Green Bank and National Climate Change Fund exploration and development would include the following


2 Conduct an in-depth market analysis to identify and quantify the project pipeline for a new Green BankClimate Finance Facility andor a complementary NCCF across all priority sectors and in a gender-inclusive approach









Systemic Approach

While Green Bank and NCCF formation needs to be country- driven and based on country-specific market dynamics existing funding and financing programs and market gaps and opportunities there is an opportunity to support Green Bank development at scale in Africa

The essential challenges in Green Bank formation lie in three areas

1 Identifying the host institution and appropriate structure

2 Securing capitalization from various sources including the GCF Climate Funds development partners and sovereign loans andor grants particularly in countries that are debt constrained

3 Securing the necessary technical assistance funding for Green BankNCCF design and structuring work

To date the lack of a coordinated approach to Green Bank formation has resulted in a very time and labor intensive process to advance these steps on a coun-try-by-country basis Challenges have included

xx Lack of direct-access accredited entities to provide core climate-oriented loans and equity to capitalize Green Banks and NCCFs (the GCF is a valuable source of funds but can only flow through ldquoaccredited entitiesrdquo)xx Elongated timelines on both technical support grants

for Green Banks design and structuring and on securing capitalizationxx High global ambition to mobilize climate investment

in Africa but a lack of clarity on replicable institutional approaches ndash such as the Green Bank model ndash to bring this intention to scale

xx Lack of clarity on priority project pipelines and the specific financial interventions that could bring the green sector more quickly to scale


Overall on both the individual country level and at a sys-temic multi-country level the Green Bank model adjacent to National Climate Change Funds holds tremendous potential to build country driven capacity to advance cli-mate investment in support of national green growth and climate objectives


Stakeholder Interview List

ZAMBIA

Zambia NDA to Green Climate Fund

Mr Francis MpampiMs Brenda SimaingaMr Ntazi Sinyangwe

Rural Electrification Authority

Mr Clement Silavwe

Beyond the Grid Fund Zambia

Mr Lloyd Chingambo Mr Sabera Khan

Lloydrsquos Financials

Mr Lloyd Chingambo

Development Bank of Zambia

Dr Samuel Bwalya Mr Mwembe Sichulam Ms Samantha Okpara

GETFiT Zambia

Ms Judith Raphael

Industrial Development Corporation (IDC)

Mr Muchindi Kasongole

ZESCO

Ms Collette SijambaMs Suzyo Mulunda

Zambia National Commercial Bank (Zanaco)

Mr Mulonda Munalala Mr Andrew Muyaba

Ministry of Energy amp Water Development

Mr Michael Mulasikwanda

Ministry of Finance

Mr Ireen Fwalanga Mr Mulele Maketo


Mr C Silavwe

Virunga Power

Mr Barrett Gold Mr Brian Kelly Mr Thomas Burman

First National Bank of SA (FNB) Zambia

Mr Oliver Simpokolwe

Mr Kapumpe Chola Kaunda Mr Joseph Mudondo Mr Mufungulwa Luyanga

Green Energy

Mr Jonathan Mrsquotonga

UGANDA

Ministry of Finance Planning and Economic Development (MOFPED)

Mr Juvenal Ntacyo Muhumuza Mr Andrew Masaba

Uganda Development Bank

Mr Moses Ebitu Ms Sarah Fortunate

UECCC (Uganda Energy Capitalization Credit Company)

Mr Desmond Tutu Roy Baguma

East African Development Bank

Mr Edward Okot Omoya

Private Sector Foundation Uganda wwwpsfugandaorg

Mr Franccedilis Kajura

UNREEEA wwwunreeeaorg

Ms Esther Nyanzi

ACTADE wwwactadeorg

MS Susan Nanduddu

Uganda Solar Energy Association

MS Emmy Kimbowa

Uganda Small Scale Industries Association

Ms Veronica Namwanje

Uganda National Farmers Federation

Mr Humphrey Mutaasa



Ministry of Water amp Environment

Mr Bob Natifu

Ministry of Energy amp Mineral Development

Mr Justine Akumu


Bank of Uganda

Mr Charles Owiny Okello Mr Tumubweinee Twinemanzi Mr Andrew Kawere Mr Hannington Wasswa Mr Robert Mbabazize

Eletricity Regulatory Authority (ERA)

Mr Vianney Mutyaba Mr Harold Obiga Ms Charlotte Kyohairwe Mr Albert Kasoba Isaac V Kinhonhi Mr Prossy Tumwebaze Mr Michael Mwondha Mr Mike Mbaziira

Uganda Electricity Transmission Co

Ms Rachel Arinda Baalessanvu

UNDP

Ms Gloria NamandeMr Onesimus Muwhesi

Global Green Growth Institute

Mr Dagmar Zwebe

Mr UNEP-DTU Partnership

Ms Fatima Begonia Mr Frederik Staun

Cities and Infra for Uganda (CIG)

Ms Helena Mcleod Mr Barry Dyson Mr Paolo Craviolatti Mr Revocatus Twinomuhangi

Virunga Power

Barrett Gold Mr Brian Kelly Mr Thomas Burman

GHANA

Ghana GCF NDA

Dr Alahassan Iddrisu

Ministry of Finance

Mr Robert MensahMr Adwoa QuansahMr Foster GyanfiDr Daniel BeneforMr Bash MohammedAbdul-RzakMr Ben Tsikodo

Ghana GCF NDA


Nunya Farms amp UIC Energy

Mr Ken Kanyagui

Apex Bank

Mr Alex Kwasi Awuah

Stanbic Bank

Mr Stanislaus Deh

Ghana Infrastructure Fund (GIIF)

Mr Solomon Asamoah Mr Kwadwo Kwakye Gyan Mr Reg Okai

UN Advisory to the SDG Unit in the Office of the President

Mr Kojo Busia Leticia Brown Ms Sonia Essombmadje

Grey Works

Mr Igwe Onuma

MOZAMBIQUE

Mozambique GCF NDA

Mr Albano Manjate

National Directorate of Energy

Mr Damiao Namuera

Green Light

Mr Boris Atanassov

Associaccedilao Lusofana de Energias Renovaveis (ALER)

Mr Miquelina Menezes

Embassy of Sweden

Mr Samer Fayadh

KfW

Mr Jens Dorn

GIZ

Mr Joseacute Mestre Mr Marcus Rother

Associaccedilatildeo Moccedilambicana de Energias Renovaacuteveis (AMER)

Mr Emmett Costel

EDM

Ms Olga Utchavo

ENABEL

Mr Mark Hoekstra

Global Global Green Growth Institute

Mr Dex Agourides Mr Winnie Wong

GET Invest

Mr Michael Feldner


TUNISIA

Tunisia GCF Focal Point

Mr Chokri Mezghani

Ministry of Agriculture

Mr Rafik Aini

UNDP Tunisia

Ms Jihene TouilMr Mohamed Aymen KlaldiMr Nejib Osman

Attijari Bank

Mr Issam Meddeb

GIZ

Mr Ruediger Spielkamp Mr Seif Derouiche

Independent Consultant

Ms Heacutela Cheikhrouhou

European Investment Bank

Mr Amen Moumen Ms Joyce Liyan Mr Fernando Garcia

STEG ndash Societe Tunisienne drsquoEacutelectricite et de Gaz

Mr Moncef Harrabi


Mr Rafik Aini

UPC North Africa Renewables

Mr Maha Benhmiden

UPC Renewables North Africa

Mr Maha Ben Hmidane

EBRD

Mr Peter HirschMr Shahir Zaki

Islamic Development Bank

Mr Anouar Hajjoubi

BENIN

Ministry of Finance

SE Mr Romuald Wadagni Le MinistreMr Arsene DansouMr John Andrianarisata

Ministry of Energy

Mr Herman ZineMs Mamidou Tchoutcha

EcoBank

Mr Noulekou Lazare

Orabank

Mr Tchoungui Josiane Mr Ayosso Benedicta Mr Mevi CarlosAissatou Zitti

Coris Bank

Mr Jean Jacques Golou

Agence du Cadre de Vie et du Developpement du Territoire

Mr Adam Pinto Mr Jean-Claude Grisoni

Banque Ouest Africaine de Developpement (BOAD)

Mr Jaques Kouame

Millenium Challenge Account

Mr Gabriel Degbegni

Eco Bank

Mr Noulekou Lazare

Renewable Energy Association

Mr Germain Akindes

Ministry of Energy

Mr Todeacuteman Flinso Assan Mr Herman Zime Mr Mamidou Tchoutcha Mr Armand Dakehoun

REGIONAL (Multiple Country Presence)

African Development Bank

Mr Romulo Correa Mr Namho OhMr Peter Engbo Rasmussen Mr John AndtianarisataMr Antony Karembu Mr Bumi Camara Mr Theo AwanzamMr Diego Fernaacutendez de VelascoMs Balgis Osman-ElashaMr Ali Kanzari Ms Fatma Benabda Mr Luciano Lavizzari Mr Philippe Trape Mr Mario BatsanaMr Cesar TiqueMr Stefan AtchiaMs Marta Monjane

Power Africa

Ms Phoebe SullivanMr Rockfeler Herisse Mr Emmanuel MotengMr Paul NichersonMr Ria Govender Mr Chris Powers Mr Clarence Oelofse

_Hlk47556077

_Hlk47555833

_Hlk47555871

_Hlk47556175

_Hlk47785066

_Hlk47870628

_Hlk47873123

_Hlk47871810

_Hlk47903584

_Hlk47871394

Contents

Abbreviations ii

1 Executive Summary 1

2 Project Overview and Introduction 10Project Goals 11

Project Context 11

Project Partners amp Acknowledgements 12

Project Methodology amp Approach 13

3 Project Countries 16

4 Introduction to the Green BankCatalytic Green Finance Facility Model 18

5 Introduction to National Climate Change Funds 26

6 Profiles of Green BankNCCF Potential in Six Selected Project Countries 29Zambia 30

Ghana 48

Benin 66

Tunisia 84

Uganda 102

Mozambique 117

7 Overview of Process to Design Form Capitalize and Launch Green Banks Alongside National Climate Change Funds 138

8 Conclusions and Recommendations 146

Stakeholder Interview List 149


Abbreviations


$ ndash US Dollars

















GB ndash Green Bank














MW ndash Mega Watts













































Climate Projects







Green Bank Impact2



Zambia









Ghana











Benin











Tunisia






Uganda





Mozambique






































Systemic Approach

















Project Goals






Project Context



































investment









xCountry Criteria





























investment










community










GHANA

ZAMBIA

UGANDA

TUNISIA

MOZAMBIQUE

BENIN















Climate Projects






















Green Bank Impact5



green bonds etc)


AF etc)

Development Finance





CommercialInvestors


Product B Product C

CommercialInvestors

Co-Invest

Co-Invest

Climate Project

CampI Solar Project

CampI Solar Project

CampI Solar Project

Climate Project








1



JUNE 2019





Anchor funders



Capital structure





Key design partners


Eligible projects





Target leverage


Expected impact













































Approve debt

financing

Approve grant



RGIF Green Projects








(where applcable)


































ZAMBIA













I COUNTRY OVERVIEW



























Energy Context





























56 REMP 2009

57 REMP 2009





























































II PRIORITY SECTORS



















































































Source 7th NDP Plan




TargetTarget

2017 2018 2019 2020 2021




Crops 2 16 2 4 3 3 4

Livestock 0 6 0 2 2 2 0


4 0 1 1 1 1


4 0 2 1 1 0




0 5 0 0 0 0 5




Small 3690 35400 4400 9400 15400 25400 35400


75345100000 80000 85000 90000 95000 100000


Weirs 10 55 11 11 11 11 11

Dams 2000 35 7 7 7 7 7









104 NAIP 2014-2018

























III CONCLUSION








GHANA














I COUNTRY OVERVIEW



























Energy Context


















































































































































207 http1d1fgovgh















II PRIORITY SECTORS
























































































































III CONCLUSION














BENIN


















I COUNTRY OVERVIEW





























Energy Context








































297 httpsarebj
























































































































































































































III CONCLUSION









TUNISIA













I COUNTRY OVERVIEW
































Energy Context




















Policy Actors













































































communities


















































482













































II PRIORITY SECTORS

















































































































III CONCLUSION








UGANDA










I COUNTRY OVERVIEW




















etc)


500000

1000000

1500000

2000000

0

10

20

30

40

0





Energy

5000

10000

15000

20000

00

2520

10530

18360

594135173937

121

10290





















Energy Context




50
















577 httpswwweraorug
































588 World Bank data

589 World Bank data

590 World Bank data







597 WRI CAIT 2015

















604 wwwugandacigcom










II PRIORITY SECTORS








































































619 World bank data
































III CONCLUSION





MOZAMBIQUE



















I COUNTRY CONTEXT





























Energy Context

























Policy Actors



























































































































745 httpswwwbgfzorg


























Policy Actors



































































































































































(MITADER)









III CONCLUSION

































3) Capitalization
































































































Systemic Approach















ZAMBIA




Mr Clement Silavwe




Mr Lloyd Chingambo



GETFiT Zambia

Ms Judith Raphael



ZESCO






Ministry of Finance



Mr C Silavwe

Virunga Power





Green Energy


UGANDA












Ms Esther Nyanzi

ACTADE wwwactadeorg

MS Susan Nanduddu


MS Emmy Kimbowa




Mr Humphrey Mutaasa




Mr Bob Natifu


Mr Justine Akumu


Bank of Uganda






UNDP



Mr Dagmar Zwebe





Virunga Power


GHANA

Ghana GCF NDA


Ministry of Finance


Ghana GCF NDA



Mr Ken Kanyagui

Apex Bank

Mr Alex Kwasi Awuah

Stanbic Bank

Mr Stanislaus Deh





Grey Works

Mr Igwe Onuma

MOZAMBIQUE

Mozambique GCF NDA

Mr Albano Manjate


Mr Damiao Namuera

Green Light

Mr Boris Atanassov



Embassy of Sweden

Mr Samer Fayadh

KfW

Mr Jens Dorn

GIZ



Mr Emmett Costel

EDM

Ms Olga Utchavo

ENABEL

Mr Mark Hoekstra



GET Invest

Mr Michael Feldner


TUNISIA


Mr Chokri Mezghani


Mr Rafik Aini

UNDP Tunisia


Attijari Bank

Mr Issam Meddeb

GIZ







Mr Moncef Harrabi


Mr Rafik Aini


Mr Maha Benhmiden


Mr Maha Ben Hmidane

EBRD



Mr Anouar Hajjoubi

BENIN

Ministry of Finance


Ministry of Energy


EcoBank

Mr Noulekou Lazare

Orabank


Coris Bank





Mr Jaques Kouame


Mr Gabriel Degbegni

Eco Bank

Mr Noulekou Lazare


Mr Germain Akindes

Ministry of Energy





Power Africa


_Hlk47556077

_Hlk47555833

_Hlk47555871

_Hlk47556175

_Hlk47785066

_Hlk47870628

_Hlk47873123

_Hlk47871810

_Hlk47903584

_Hlk47871394


Abbreviations


$ ndash US Dollars

















GB ndash Green Bank














MW ndash Mega Watts













































Climate Projects







Green Bank Impact2



Zambia









Ghana











Benin











Tunisia






Uganda





Mozambique






































Systemic Approach

















Project Goals






Project Context



































investment









xCountry Criteria





























investment










community










GHANA

ZAMBIA

UGANDA

TUNISIA

MOZAMBIQUE

BENIN















Climate Projects






















Green Bank Impact5



green bonds etc)


AF etc)

Development Finance





CommercialInvestors


Product B Product C

CommercialInvestors

Co-Invest

Co-Invest

Climate Project

CampI Solar Project

CampI Solar Project

CampI Solar Project

Climate Project








1



JUNE 2019





Anchor funders



Capital structure





Key design partners


Eligible projects





Target leverage


Expected impact













































Approve debt

financing

Approve grant



RGIF Green Projects








(where applcable)


































ZAMBIA













I COUNTRY OVERVIEW



























Energy Context





























56 REMP 2009

57 REMP 2009





























































II PRIORITY SECTORS



















































































Source 7th NDP Plan




TargetTarget

2017 2018 2019 2020 2021




Crops 2 16 2 4 3 3 4

Livestock 0 6 0 2 2 2 0


4 0 1 1 1 1


4 0 2 1 1 0




0 5 0 0 0 0 5




Small 3690 35400 4400 9400 15400 25400 35400


75345100000 80000 85000 90000 95000 100000


Weirs 10 55 11 11 11 11 11

Dams 2000 35 7 7 7 7 7









104 NAIP 2014-2018

























III CONCLUSION








GHANA














I COUNTRY OVERVIEW



























Energy Context


















































































































































207 http1d1fgovgh















II PRIORITY SECTORS
























































































































III CONCLUSION














BENIN


















I COUNTRY OVERVIEW





























Energy Context








































297 httpsarebj
























































































































































































































III CONCLUSION









TUNISIA













I COUNTRY OVERVIEW
































Energy Context




















Policy Actors













































































communities


















































482













































II PRIORITY SECTORS

















































































































III CONCLUSION








UGANDA










I COUNTRY OVERVIEW




















etc)


500000

1000000

1500000

2000000

0

10

20

30

40

0





Energy

5000

10000

15000

20000

00

2520

10530

18360

594135173937

121

10290





















Energy Context




50
















577 httpswwweraorug
































588 World Bank data

589 World Bank data

590 World Bank data







597 WRI CAIT 2015

















604 wwwugandacigcom










II PRIORITY SECTORS








































































619 World bank data
































III CONCLUSION





MOZAMBIQUE



















I COUNTRY CONTEXT





























Energy Context

























Policy Actors



























































































































745 httpswwwbgfzorg


























Policy Actors



































































































































































(MITADER)









III CONCLUSION

































3) Capitalization
































































































Systemic Approach















ZAMBIA




Mr Clement Silavwe




Mr Lloyd Chingambo



GETFiT Zambia

Ms Judith Raphael



ZESCO






Ministry of Finance



Mr C Silavwe

Virunga Power





Green Energy


UGANDA












Ms Esther Nyanzi

ACTADE wwwactadeorg

MS Susan Nanduddu


MS Emmy Kimbowa




Mr Humphrey Mutaasa




Mr Bob Natifu


Mr Justine Akumu


Bank of Uganda






UNDP



Mr Dagmar Zwebe





Virunga Power


GHANA

Ghana GCF NDA


Ministry of Finance


Ghana GCF NDA



Mr Ken Kanyagui

Apex Bank

Mr Alex Kwasi Awuah

Stanbic Bank

Mr Stanislaus Deh





Grey Works

Mr Igwe Onuma

MOZAMBIQUE

Mozambique GCF NDA

Mr Albano Manjate


Mr Damiao Namuera

Green Light

Mr Boris Atanassov



Embassy of Sweden

Mr Samer Fayadh

KfW

Mr Jens Dorn

GIZ



Mr Emmett Costel

EDM

Ms Olga Utchavo

ENABEL

Mr Mark Hoekstra



GET Invest

Mr Michael Feldner


TUNISIA


Mr Chokri Mezghani


Mr Rafik Aini

UNDP Tunisia


Attijari Bank

Mr Issam Meddeb

GIZ







Mr Moncef Harrabi


Mr Rafik Aini


Mr Maha Benhmiden


Mr Maha Ben Hmidane

EBRD



Mr Anouar Hajjoubi

BENIN

Ministry of Finance


Ministry of Energy


EcoBank

Mr Noulekou Lazare

Orabank


Coris Bank





Mr Jaques Kouame


Mr Gabriel Degbegni

Eco Bank

Mr Noulekou Lazare


Mr Germain Akindes

Ministry of Energy





Power Africa


_Hlk47556077

_Hlk47555833

_Hlk47555871

_Hlk47556175

_Hlk47785066

_Hlk47870628

_Hlk47873123

_Hlk47871810

_Hlk47903584

_Hlk47871394


























Climate Projects







Green Bank Impact2



Zambia









Ghana











Benin











Tunisia






Uganda





Mozambique






































Systemic Approach

















Project Goals






Project Context



































investment









xCountry Criteria





























investment










community










GHANA

ZAMBIA

UGANDA

TUNISIA

MOZAMBIQUE

BENIN















Climate Projects






















Green Bank Impact5



green bonds etc)


AF etc)

Development Finance





CommercialInvestors


Product B Product C

CommercialInvestors

Co-Invest

Co-Invest

Climate Project

CampI Solar Project

CampI Solar Project

CampI Solar Project

Climate Project








1



JUNE 2019





Anchor funders



Capital structure





Key design partners


Eligible projects





Target leverage


Expected impact













































Approve debt

financing

Approve grant



RGIF Green Projects








(where applcable)


































ZAMBIA













I COUNTRY OVERVIEW



























Energy Context





























56 REMP 2009

57 REMP 2009





























































II PRIORITY SECTORS



















































































Source 7th NDP Plan




TargetTarget

2017 2018 2019 2020 2021




Crops 2 16 2 4 3 3 4

Livestock 0 6 0 2 2 2 0


4 0 1 1 1 1


4 0 2 1 1 0




0 5 0 0 0 0 5




Small 3690 35400 4400 9400 15400 25400 35400


75345100000 80000 85000 90000 95000 100000


Weirs 10 55 11 11 11 11 11

Dams 2000 35 7 7 7 7 7









104 NAIP 2014-2018

























III CONCLUSION








GHANA














I COUNTRY OVERVIEW



























Energy Context


















































































































































207 http1d1fgovgh















II PRIORITY SECTORS
























































































































III CONCLUSION














BENIN


















I COUNTRY OVERVIEW





























Energy Context








































297 httpsarebj
























































































































































































































III CONCLUSION









TUNISIA













I COUNTRY OVERVIEW
































Energy Context




















Policy Actors













































































communities


















































482













































II PRIORITY SECTORS

















































































































III CONCLUSION








UGANDA










I COUNTRY OVERVIEW




















etc)


500000

1000000

1500000

2000000

0

10

20

30

40

0





Energy

5000

10000

15000

20000

00

2520

10530

18360

594135173937

121

10290





















Energy Context




50
















577 httpswwweraorug
































588 World Bank data

589 World Bank data

590 World Bank data







597 WRI CAIT 2015

















604 wwwugandacigcom










II PRIORITY SECTORS








































































619 World bank data
































III CONCLUSION





MOZAMBIQUE



















I COUNTRY CONTEXT





























Energy Context

























Policy Actors



























































































































745 httpswwwbgfzorg


























Policy Actors



































































































































































(MITADER)









III CONCLUSION

































3) Capitalization
































































































Systemic Approach















ZAMBIA




Mr Clement Silavwe




Mr Lloyd Chingambo



GETFiT Zambia

Ms Judith Raphael



ZESCO






Ministry of Finance



Mr C Silavwe

Virunga Power





Green Energy


UGANDA












Ms Esther Nyanzi

ACTADE wwwactadeorg

MS Susan Nanduddu


MS Emmy Kimbowa




Mr Humphrey Mutaasa




Mr Bob Natifu


Mr Justine Akumu


Bank of Uganda






UNDP



Mr Dagmar Zwebe





Virunga Power


GHANA

Ghana GCF NDA


Ministry of Finance


Ghana GCF NDA



Mr Ken Kanyagui

Apex Bank

Mr Alex Kwasi Awuah

Stanbic Bank

Mr Stanislaus Deh





Grey Works

Mr Igwe Onuma

MOZAMBIQUE

Mozambique GCF NDA

Mr Albano Manjate


Mr Damiao Namuera

Green Light

Mr Boris Atanassov



Embassy of Sweden

Mr Samer Fayadh

KfW

Mr Jens Dorn

GIZ



Mr Emmett Costel

EDM

Ms Olga Utchavo

ENABEL

Mr Mark Hoekstra



GET Invest

Mr Michael Feldner


TUNISIA


Mr Chokri Mezghani


Mr Rafik Aini

UNDP Tunisia


Attijari Bank

Mr Issam Meddeb

GIZ







Mr Moncef Harrabi


Mr Rafik Aini


Mr Maha Benhmiden


Mr Maha Ben Hmidane

EBRD



Mr Anouar Hajjoubi

BENIN

Ministry of Finance


Ministry of Energy


EcoBank

Mr Noulekou Lazare

Orabank


Coris Bank





Mr Jaques Kouame


Mr Gabriel Degbegni

Eco Bank

Mr Noulekou Lazare


Mr Germain Akindes

Ministry of Energy





Power Africa


_Hlk47556077

_Hlk47555833

_Hlk47555871

_Hlk47556175

_Hlk47785066

_Hlk47870628

_Hlk47873123

_Hlk47871810

_Hlk47903584

_Hlk47871394

Potential for Green Banks & National Climate Change Funds ...

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